Lower prices driving Boots sales
Growth across first half but pressure on margins
Boots has seen good sales growth across the past six months, but has taken a hit on margins as customers respond enthusiastically to its [i]Lower Prices You’ll Love[/i] marketing campaign.
The health & beauty retailer, which operates around 1400 stores, is forecasting total sales growth of 4.9 per cent across the first half of it’s financial year, ending this week, with like-for-like sales up 3.3 per cent.
However, gross margin is 50 base percentage points lower than planned across the half, and around 180 base percentage points down on last year. Boots said this was due to “accelerating customer response” to the lower prices campaign, as well below forecast sales of higher margin summer products during the UK’s wet July and August.
The stores have seen strong growth in healthcare sales, up around 5.5 per cent, with pharmacy dispensing benefiting from rapid growth in demand for Boots prescription collection service.
[img r]bootsinstore.jpg[/img]Beauty and toiletries sales have grown by 4.4 per cent, despite the poor Sun Shop sales, while new product launches saw food sales increase by 5 per cent. New clothing and accessories ranges saw baby product sales increase by around 7 per cent.
The company said its initiatives to improve the supply chain and reduce its central headcount are on track, while investment in stores, extended trading hours and pharmacy is running to plan.
Gross margin “will continue to receive close attention during the important peak trading months ahead”, with price reductions implemented in the second half of last year expected to significantly reduce year-on-year gross margin change in the second half.
Boots said its forecasts for the overall fall in margins for the current year are on track, but warned the experience of the first half “has increased the uncertainty of achieving this outcome”.
Chief executive Richard Baker said: “At the start of this year we set out a series of initiatives to make Boots more modern, competitive and efficient which are all on track. Sales performance is encouraging, driven by our customers’ response to improved value and convenience.
“We have made substantial progress in the first half but much of what we planned to achieve in the year, including another good Christmas, falls in the second half and therefore there is still a great deal to do.”
