Walgreens Swings To Loss On $2bn Impairment Charges At Boots UK
Walgreens Boots Alliance Inc swung to a third-quarter loss, hammered by impairment charges of $2 billion (€1.76 billion) as the coronavirus crisis took a toll on its Boots UK division.
Shares of the Deerfield, Illinois-based company fell 3.2% to $40.95 after Walgreens said customer traffic at Boots UK was down 85% in April as it temporarily shut more than 100 stores in key areas as well as nearly all of its 600 Boots Opticians stores.
That resulted in a hit of $700 million (€617.42 million) to $750 million (€661.53 million) to sales and weighed the most on its Retail Pharmacy International unit.
'Uneven' Impact On Business
According to the managing director of GlobalData Retail, Neil Saunders, the impact of the pandemic on Walgreen has been “very uneven.”
“In the US, sales increased thanks to customers stocking up on medicines and other essentials during the lockdown. However, revenue collapsed at the international division as shoppers shunned beauty and other non-essentials products which make up a higher proportion of the sales mix,” he explained.
Net loss attributable to Walgreens was $1.71 billion (€1.51 billion), or $1.95 per share, in the quarter ended 31 May, versus a profit of $1.03 billion (€910 million), or $1.13 per share, a year earlier.
Revenue rose marginally to $34.63 billion (€30.54 billion).
'A Sore Point'
The Boots division has been a sore point for Walgreens, which has been trying to revive the ailing business through cost-cutting measures. On Thursday, the company announced another round of job cuts and store closures.
Walgreens said it plans to close 48 Boots Opticians stores and cut headcount in its UK support office by 20%, a move that could impact more than 4,000 employees or 7% of its workforce.
Saunders added, "The largest contributor to the plunge into the red, was the $2 billion non-cash impairment charge to write down the value of the Boots business in the UK.
"This is a remarkable deterioration in asset value and, in our view, underlines that the prospects for Boots are now significantly gloomier than they were at the start of the year."
Aside from Boots, lower reimbursement rates for prescription drugs, low generic drug prices and competition from online retailers have also dealt a blow to Walgreens, forcing it to launch a cost-cutting programme in 2018.
Commenting on the company's outlook, Saunders said, "The international part of the business needs a new strategy to deliver growth in the wake of changing consumer demand. Meanwhile, the US business cannot rely on favourable pandemic trends forever. It needs to reinvent to ensure continued relevance.
"To drive long term value, Walgreens needs to carve out a much more prominent position in the wellness economy across its medical and retail businesses."