Walgreens Focused on Growing Health Unit as Solid Int’l Results Complicate Sale of Boots Unit

The second-largest U.S. pharmacy retailer says it plans to open 100 new Walgreens Health Corner locations this year, having closed two acquisitions last quarter and now finalizing a third. While no fresh details were given concerning the sale of its U.K.-based Boots franchise, sharply improved international results would certainly make a deal easier and more lucrative.

With a tailwind of administering 56 million vaccinations and 22 million COVID tests, the CEO of Walgreens Boots Alliance said Thursday (Jan. 6) the company is pushing forward with plans to accelerate and deepen its transformation into healthcare in a quest to become “the pharmacy of the future.”

The comments from CEO Rosalind Brewer come as the drugstore chain reported an 88% increase in its domestic omnichannel sales last quarter as well as a sharp rebound in its international businesses, which have been under increased scrutiny since reports in early December said the company might spin-off the U.K.-based Boots business it paired with in 2012.

“We are applying a rigorous strategic lens to our equity investments, and exploring all options to unlock value,” Brewer told analysts and investors on the company’s first-quarter earnings call, pointing to other acquisitions such as its increased 100% ownership stake in both Alliance RX  Walgreens Prime and its German wholesale business as better indicators of its new direction.

While no fresh details on the specific fate of Boots were given, a solid rebound in its quarterly sales and results would make a sale of the unit smoother or retention of it easier to justify at a time when the retailer is reinventing itself to be more of a healthcare provider.

“We’re looking at adding a new Health Corner store every week on average in 2022 as we are refocusing our portfolio and optimizing capital allocation,” Brewer said.

Closing Healthcare Gaps

Brewer spoke to the company’s stated aim of further developing its healthcare offerings within a base of nearly 9,000 U.S. stores and hundreds of others that it has added through the acquisition of VillageMD, Shields and a still-pending CareCentrix deal which it expects to close in Q3.

Brewer said the new Health Corners strategy, as supported by early results from 10 new California locations, show how Walgreens will be able to “close care gaps” by offering more services and convenient locations.

“I have increased confidence that, when executed at scale, this innovative and consumer centric strategy will drive significant growth in value creation ahead,” Brewer said, noting that the company’s increased healthcare investments were a clear step towards its vision to be the leader in reimagining local health care and wellbeing.

“We are connecting our physical Health Corners [stores] with our digital app and our other unique complementary assets to meaningfully reduce costs and improve health outcomes and equity.”

On the Move

Putting acquisitions and divestitures aside, shares of Walgreens have enjoyed a huge 25% rally over the past five weeks leading into its latest earnings results. On that front, the Deerfield, Ill.-based retailer said its total revenues rose 7.8% to $33.9 billion for the three months ending Nov. 30, with U.S. retail comparable sales up 10.6% and its Boots U.K. retail unit posting a 16% revenue rebound.

Other operational highlights for the quarter include the completion of 3.6 million same-day pick-up orders, which Brewer said averaged about $30 per order compared to $20 for in-store purchases. At the same time, over 7 million new “MyWalgreens” membership users were added during the quarter, bringing the total to 92.4 million.

In addition to its testing and vaccine results, Walgreens said U.S. retail sales, excluding tobacco and e-cigarettes, were up 11.7%, with outsized revenue growth of nearly 25% in health and wellness, followed by a 16% increase in beauty and a nearly 12% gain in personal care.

While its international unit accounts for only about one-fifth of total revenue, the non-U.S. business saw a sharp rebound versus a year ago, with sales up 36% to $5.8 billion.

Taken together, Walgreens said it was able to raise its full year outlook to low-single digit earnings per share growth, from a previous forecast for flat results.