Boots

Boots is a legendary British health and beauty retailer and pharmacy chain, a familiar sight on nearly every UK high street for over a century. Founded in 1849, the company has grown from a single herbalist shop in Nottingham into a national institution, deeply embedded in the daily lives of millions. For investors, Boots is a fascinating case study in brand power, corporate evolution, and the challenges facing traditional retail. While it was once a standalone company listed on the London Stock Exchange, it is now a major division of the American-listed global pharmacy giant, Walgreens Boots Alliance (WBA). Understanding Boots means appreciating its historical economic moat, its modern business strategy, and its place within a much larger international conglomerate. It represents a classic 'bricks-and-mortar' business grappling with the digital age, a scenario value investors frequently encounter.

The enduring strength of Boots has historically come from two main sources: trust and location. As a pharmacy, it's a primary healthcare provider, dispensing prescriptions and offering medical advice. This creates a non-discretionary, recurring revenue stream and builds a deep, trust-based relationship with customers that a typical retailer would envy. Furthermore, for decades, Boots secured the best retail locations in town centers and on high streets across the UK. This vast physical footprint made it the most convenient option for health and beauty needs, creating a powerful and long-lasting competitive advantage.

While the pharmacy is the core, the business model is much more diverse. A value investor would appreciate its multiple, interlocking revenue streams:

• Retail: Beyond the pharmacy counter, Boots is a massive retailer of cosmetics, skincare, toiletries, and personal care products. It has been a launchpad for major global brands and boasts its own highly profitable private-label lines, such as the iconic No7 and Soltan brands, which offer higher profit margins than third-party products.
• Services: The company also operates Boots Opticians and, in some locations, hearing care services, further integrating itself into the healthcare ecosystem.
• Loyalty: The Advantage Card loyalty program is one of the most successful in UK retail history. It's not just a marketing tool; it's a treasure trove of customer data that allows for highly targeted promotions and deepens customer loyalty, making it harder for competitors to poach their business.

The corporate story of Boots is a lesson in modern finance. After a long life as a public company, it merged with Alliance UniChem in 2006 to form Alliance Boots. Just a year later, it was taken private in one of Europe's largest-ever leveraged buyout (LBO) deals by private equity firm KKR. This involved loading the company with debt to finance the acquisition. A few years later, the American pharmacy chain Walgreens began a two-stage acquisition of Alliance Boots, culminating in the 2014 creation of Walgreens Boots Alliance (WBA), a new global entity listed on the NASDAQ stock exchange. This journey from a publicly-listed UK stalwart to a key division of a US-based global behemoth is crucial for any potential investor to understand.

You can no longer buy shares directly in “Boots PLC.” To invest in the company, you must buy shares in its parent, Walgreens Boots Alliance (ticker: WBA). For a value investor, this requires a “sum-of-the-parts” analysis.

1. The Task: An investor must analyze WBA's consolidated financial statements and attempt to discern the performance and value of the Boots division (often reported within an 'International' segment) relative to the larger US Walgreens business.
2. The Question: Is the market correctly valuing the entire WBA enterprise? Or is it perhaps overlooking the steady, cash-generative nature of Boots due to concerns about the UK retail environment and competition from online players like Amazon? Conversely, are the challenges facing Boots (high rent costs, declining high street footfall) a drag on the parent company that the market hasn't fully priced in?

Answering these questions is the essence of value investing: looking past the headlines to understand the true intrinsic value of the underlying business assets.