Walgreens writes a prescription for success
Walgreens is growing sales and profit by attracting more pharmacy customers through new partnerships and programs.
The country's largest drugstore chain said fiscal 2018 first-quarter net earnings were down 22%, to $821 million, or 81 cents a share, largely because of an “impairment” charge related to its investment in Chinese wholesaler Guangzhou Pharmaceuticals. Adjusted fiscal-first-quarter profits rose 7.8%, to $1.3 billion.
Meanwhile Walgreens' U.S. retail pharmacy sales rose nearly 9%, to $22.5 billion, and same store sales increased nearly 5% for the first quarter ended Nov. 30.
The profit and sales spikes for Walgreens come at a time when CVS Health is acquiring Aetna for $69 billion in a deal that would combine the drug chain with one of the biggest health insurers in the United States and has the potential to reshape the nation's health care industry.
"I am pleased that we delivered another strong performance in the first quarter, led by continued prescription volume and market share growth in Retail Pharmacy USA," CEO Stefano Pessina said. "At the same time, we continue to position our company for future growth with the acquisition of the first Rite Aid stores following regulatory clearance for the transaction in September. Since the end of the quarter, we announced an agreement to acquire 40 percent of Sinopharm Holding Guoda Drugstores Co., Ltd., a leading retail pharmacy chain in China, where regulatory changes have allowed us to prioritize retail opportunities. We also have accepted an offer to sell part of our investment in our Chinese wholesale partner Guangzhou Pharmaceuticals Corporation for a substantial cash return.”
Sales in the first quarter were $30.7 billion, an increase of 7.9 percent from the year-ago quarter, and an increase of 7.2 percent on a constant currency basis.
GAAP operating income in the first quarter was $1.3 billion, a decrease of 8.6 percent from the same quarter a year ago due to a loss from the company's equity earnings in AmerisourceBergen, which primarily reflects the company's share of the litigation accrual reported in AmerisourceBergen's last quarter results. Adjusted operating income in the first quarter was $1.8 billion, an increase of 4.8 percent from the same quarter a year ago, and an increase of 4.4 percent on a constant currency basis.
During the quarter, the company completed its $5 billion share repurchase program announced in June 2017 and the $1 billion expansion of that program announced in October 2017.
Retail Pharmacy USA had first quarter sales of $22.5 billion, an increase of 8.9 percent over the year-ago quarter. Sales in comparable stores increased 4.7 percent compared with the same quarter a year ago.
Pharmacy sales, which accounted for 72.4 percent of the division’s sales in the quarter, increased 14.1 percent compared with the year-ago quarter, primarily due to higher prescription volumes, including mail and central specialty following the formation of AllianceRx Walgreens Prime. Comparable pharmacy sales increased 7.4 percent, primarily due to higher volume. Reimbursement pressure and generics had negative impacts on comparable pharmacy sales growth, which was partially offset by brand inflation. The division filled 260.2 million prescriptions (including immunizations) adjusted to 30-day equivalents in the quarter, an increase of 9.5 percent over the year-ago quarter. Prescriptions filled in comparable stores increased 8.9 percent compared with the same quarter a year ago, primarily due to Medicare Part D growth and volume growth from previously announced strategic pharmacy partnerships. The division’s retail prescription market share on a 30-day adjusted basis in the first quarter increased approximately 110 basis points over the year-ago quarter to 20.6 percent, as reported by IMS Health.
Retail sales decreased 2.8 percent in the first quarter compared with the year-ago period. Comparable retail sales were down 0.9 percent in the quarter, with declines in the consumables and general merchandise category and in the personal care category partially offset by growth in the health and wellness category and in the beauty category.
Retail Pharmacy International had first quarter sales of $3.1 billion, an increase of 4.1 percent from the year-ago quarter due to currency translation. Sales decreased 0.8 percent on a constant currency basis.
Pharmaceutical Wholesale had first quarter sales of $5.7 billion, an increase of 5.6 percent from the year-ago quarter. On a constant currency basis, comparable sales increased 4.5 percent, which was behind the company’s estimate of market growth, weighted on the basis of country wholesale sales, due to challenging market conditions in certain continental European countries, partially offset by strong performance in emerging markets.
The company raised the lower end of its guidance for fiscal year 2018 by 5 cents per share and now anticipates adjusted diluted net earnings per share of $5.45 to $5.70.
Rite Aid is transferring 2,000 stores of its stores to Walgreens in a $4.4 billion deal. Walgreens previously announced it plans to close about 600 pharmacy locations nationwide, mostly Rite Aid stores, with the doors shuttering on many that are within a mile of its other brick-and-mortar spots.
WBA currently operates more than 13,200 stores in 11 countries.