Despite ongoing challenges sustained by COVID-19, Walgreens Boots Alliance started 2021 on a good note, logging a positive first-quarter. Total WBA sales grew by 5.7% versus a year ago to $36.3 billion for the quarter. Total pharmacy sales in the Retail Pharmacy USA segment increased 5.9%, driven primarily by lower generic utilization, script growth, and 13% growth in central specialty pharmacy, while retail sales (front-store sales) were down 2.2%. The Retail Pharmacy International segment continues to struggle, with retail sales falling 6.2% as Boots struggles to differentiate itself in a challenging UK market.
WBA's earnings call was relatively short, with positive performance to share and progress made on several key strategic pillars. Here are a few key takeaways:
Digital drives the discussion. With shoppers wary of entering stores due to COVID-19, Walgreens (and the drug channel at large) was forced to improve its digital offering to shoppers, making long-needed investments in fulfillment to bring the retailer in-line with other players like Target and Kroger. These investments appear to be paying off.
Taking a page from Rite Aid, Walgreens is improving its pharmacy infrastructure to free up pharmacists' work schedules. With more automation for back-room processes with the introduction of new technology, pharmacists will be able to interact with shoppers more meaningfully. In the fulfillment space, orders placed through walgreens.com or via the app can now be picked up in store, at curbside or drive-thru, in as little as 30 minutes. Over 1.7 million retail pickup orders were completed since launch in November. Altogether, total retail digitally initiated sales were up over 40% for the quarter, marking four-straight quarters of double-digit online growth since the pandemic began. Elsewhere, Walgreens' new digitally-capable loyalty program myWalgreens already has 40 million members, and the retailer plans to make the myWalgreens its primary tool for shopper targeting and personalization this year.
Online played a particularly notable role in Boots' performance. The UK retailer's new store-based online fulfillment portal, called "hybrid stores," is now operating in 121 locations and supported over 30% of all online orders in November. November online sales almost doubled year on year, marking Boots' largest ever seasonal sales period. And with a sales growth of 106% in the first quarter, Boots.com accounted for 23% of WBA's total UK retail sales.
The COVID rollercoaster continues. COVID-19 gives, and COVID-19 takes – irregular traffic patterns triggered by the pandemic continue to disrupt Walgreens' front store, introducing cycles of feast and famine. After growing by an impressive 4.7% in Q4 of 2020, the retailer's front-store comps are again flirting with the negatives – managing to increase by only 0.4% as total retail sales fell 2.2%. In terms of categories, health and wellness grew by 4.1%. A surprisingly mild flu season (typically a reliable sales driver for Walgreens) was a significant drag on the retailer's front-store performance, acting as a headwind of around 150 basis points on total retail store comps. Beauty declined 13.1%, reflecting significant ongoing challenges introduced by COVID-19 to one of Walgreens' priority categories.
Pharmacy is equally at the mercy of COVID-19. Although comparable pharmacy sales were up 5% and comp scripts grew 2.7%, the pandemic negatively impacted script growth by around 210 basis points. With doctor visits still significantly lower than pre-COVID-19 levels, scripts for acute conditions remain an unreliable growth driver for Walgreens, and a much weaker cough/cold/flu season led to a 25% decline in seasonal flu scripts.
The sale of Alliance segment opens new opportunities. Walgreens Boots Alliance's decision to sell their international drug wholesaler business Alliance to long-standing partner Amerisource Bergen will open new opportunities for the retailer. On the earnings call, outgoing-CEO Stefano Pessina shared that his retailer will employ the proceeds from the sale to reduce debt and accelerate healthcare services development. Some of the funds have already been used to expand Walgreens' partnership with VillageMD – this investment will facilitate faster deployment of VillageMD clinics within Walgreens' stores.
Elsewhere, some of the proceeds from Alliance's sale will go towards acquiring businesses to improve Walgreens Boots Alliance's healthcare offering. Over the next six months, the international retailer will likely make several acquisitions focused on generating synergy with the pharmacy business and enhancing its technological capabilities.
Q1 was a surprisingly positive quarter for Walgreens Boots Alliance. With a COVID-19 vaccine on the horizon and Walgreens positioned as one of the primary vaccine administration points, 2021 may be a strong year for the global retailer. While the inherently disruptive nature of COVID-19 makes the future challenging to predict and growth hard to sustain, Walgreens Boots Alliance is finally making some much-needed progress across its various retail initiatives.