A woman walks past Boots No7 cosmetics on sale in a Walgreens Boots Alliance Inc. store in New York.

Michael Nagel | Bloomberg | Getty Images

As people emerge from their homes, Walgreens Boots Alliance said they would order passport photos, freshen up makeup bags and roll up their sleeves for Covid-19 footage.

These three sales drivers contributed to a result that exceeded expectations in the third quarter of the financial year. The drugstore chain raised its outlook for the year, saying it had more confidence after seeing soaring sales and uptake of Covid vaccines again.

Global Chief Financial Officer James Kehoe said it administered more than 25 million shots – about 17 million of them in the three months.

The drugstore chain’s stocks fell Thursday on investor concerns that these vaccines were a short-term boost to sales. The company is in the middle of a turnaround led by its new CEO Roz Brewer, former Chief Operating Officer of Starbucks, and some believe the company’s transformation will take time.

However, Kehoe said he saw encouraging signs for the months ahead such as the return of retail traffic and discretionary spending.

During the height of the pandemic, on-site sales at Walgreens were particularly sluggish as customers bought everyday items like shampoo and toothpaste online or at the grocery store while consolidating their shopping sprees. Customers largely skipped categories like makeup and cold and flu medication as they wore masks.

That has started to change, said Kehoe. Compared to the same quarter of the previous year, sales in the photo department rose by 54% and sales of beauty articles in the USA by around 15%. On its website and in stores, Walgreens sells a variety of photo-related items, including passport photos and wall decorations – two areas that grab customers’ attention when they are renovating their homes and making travel plans again.

According to a company spokesman, Walgreens saw strength in the photo department, especially in passport photos and prints.

Across the ocean, Walgreens saw a resurgence in beauty too. Boots, its UK drugstore chain, carries more than 500 beauty brands – including 34 new brands launched this fiscal year. Beauty sales were up 85% year over year, compared to a period of strict lockdowns in the UK

Kehoe said the number of customers visiting stores is increasing in all geographic markets, from rural areas to cities, with the largest increase in business transactions in urban areas. In the US, sales transactions increased nearly 7% and cart size decreased approximately 5% as more customers returned to stores but did not buy as they did during the escalation phase of the global health crisis.

Much of Walgreens’ sales also happen online, as the company saw digital-initiated retail sales increase 95% year over year in the third quarter. Walgreens said it completed about 6 million roadside pickup and drive-through orders – new shopping that was added during the pandemic.

John Boylan, a senior equity analyst covering consumer staples for Edward Jones, said a resurgence in spending in departments like beauty and photography bodes well for the drugstore chain – as long as it can keep up with it.

“These tend to be pretty lucrative items within the store and tend to be traffic drivers too,” he said. “It kind of helps Walgreens to be more of a target point.”

However, Neil Saunders, managing director of GlobalData, said Walgreens is holding back on stores and displays that lack flair and emphasize convenience rather than inspiration. He found that like-for-like sales grew only 1.7% year-over-year or 2.6% excluding tobacco – a small number considering other retailers are benefiting from a nationwide shopping spree.

As Walgreens adds health services like primary care clinics, Saunders should redesign the facade of his stores to make them more noticeable as well.

“Among the other things it is working on, Walgreens needs to rethink its retail offering and redesign the experience to appeal to modern shoppers,” he said in an email. “Failure to do that means Walgreens will continue to struggle in retail and miss out on many opportunities for growth.”