Because of the success of the upgraded beauty program, which includes special beauty-trained store associates and an expanded brand offering, Walgreens has decided to branch the program to an additional 1,000 U.S. doors by the end of 2017, executives said on the company’s earnings call Wednesday. Right now, the program is in almost 2,000 U.S. doors. Executives said that number will reach almost 3,000 by the end of the summer.
“The growth we have seen in the health and wellness and beauty sales…is encouraging,” said Walgreens chief executive officer Stefano Pessina. “Based on the latest Nielsen data [for the 13 weeks ended Feb. 15], we gained share in the health and wellness, beauty and personal-care categories,” said George Fairweather, executive vice president and global chief financial officer.
Fairweather noted that Walgreens’ owned brands make up 15 percent of beauty sales, adding that No. 7 and Soap & Glory sales are going well. “Repurchase numbers of No. 7 products have been very encouraging,” Fairweather said. He added that another Walgreens-owned brand — Botanics — will move into stores that have the differentiated beauty offering.
As Walgreens expands in beauty, the business expects “leading third-party beauty brands” to become part of its growing range, Pessino added.
Walgreens executives spoke on the company’s earnings call, after the business released its financial results.
For its second fiscal quarter, earnings were $1.1 billion, up 14 percent from the year-ago period. Net earnings per share were up 15.3 percent, to 98 cents. Overall sales for the quarter were down 2.4 percent, to $29.4 billion. Walgreens retail pharmacy sales were up 1.5 percent year-over-year to $21.8 billion, but retail sales dipped 2.7 percent because of e-commerce closures (in 2016, Walgreens closed Drugstore.com and Beauty.com).
For the first half of its fiscal year, Walgreens net earnings increased 3.6 percent year-over-year, with EPS up 3.7 percent to $1.94. Sales dipped 2.1 percent to $57.9 billion compared to the year-ago period.
Walgreens is maintaining its guidance for fiscal 2017, expecting adjusted diluted net EPS of $4.90 to $5.08.
“The problems on general merchandise were partly offset by a better performance in beauty and health where Walgreens has seen robust sales growth,” wrote Neil Saunders, managing director at analysis business GlobalData’s retail team. “Investment has been made in both areas, and store presentation and assortments are much stronger than they were a couple of years ago. As both categories are a natural fit with Walgreens, it has been easier to stimulate customer interest and spending than is the case for general merchandise.”
The chain is still working to close its proposed merger with Rite Aid, and has an extension through July 31 with the U.S. Federal Trade Commission to try to get that deal approved. As part of the transaction, Walgreens agreed to sell 865 Rite Aid stores to Fred’s Pharmacy in December.
Asked by a Wall Street analyst about the deal and the amount of people available to work on it at the FTC, Pessino said: “I am still positive on this deal. I believe that we have a strong argument to defend this deal. I cannot comment on the organization of the FTC, it would be up to them to decide whether they have enough people or not to judge on the quality of this deal. We are doing what we can together with Rite Aid and Fred’s, we are collaborating very well with the FTC, and as I said, we are preparing ourselves to be ready to certify compliance if we will decide to do so.”