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Walgreens’ Q1 U.S. pharmacy sales rise but retail sales fall

Walgreens Boots Alliance on Thursday reported earnings and revenue that topped estimates as U.S. pharmacy sales jumped.

Net income fell 22.1% to $821 million, or 81 cents per share, in the period ended Nov.30, from $1.05 billion, or 97 cents per share, in the year-ago period. The drop was attributed mainly to an impairment charge related to the company’s investment in Chinese wholesale partner Guangzhou Pharmaceuticals.

On an adjusted basis, Walgreens earned $1.28 per share, beating the Street’s average estimate of $1.26 per share.

Net sales rose 7.9% to a better-than-expected $30.74 billion. Analysts were expecting revenue of $30.35 billion.

Walgreen’s Retail Pharmacy USA division posted sales of $22.5 billion, up 8.9% over the year-ago quarter. Total same-store sales in the division rose 4.7%. Comparable pharmacy sales increased 7.4%, primarily due to higher volume.

Same-store front-end sales decreased 0.9% amid weak demand for consumables, general merchandise and personal care products. The declines were partially offset by growth in the health-and-wellness category and in the beauty category.

"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,” said executive vice chairman and CEO Stefano Pessina. “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.”

On September 19, 2017, Walgreens announced it had secured regulatory clearance for an amended and restated asset purchase agreement to purchase 1,932 stores, three distribution centers and related inventory from Rite Aid Corporation for $4.4 billion in cash and other consideration. As of the end of December, the company had acquired 357 Rite Aid stores. Walgreens continues to expect ownership of the remaining stores to be transferred in phases, with the goal being to complete the store transfers in spring 2018.

Commenting on the results, Neil Saunders, managing director of GlobalData Retail, said that Walgreens has the potential to do a great deal better in retail, and the first step should be to find ways of competing more effectively with high-growth beauty retailers like Ulta and Sephora.

“With the firepower of its own brands, like No. 7, behind it, Walgreens is in a unique position to create a compelling proposition, Saunders said. “We do recognize the efforts made to date, but also think the execution in stores is somewhat lackluster. Away from beauty, reconfiguring the general merchandise offer is also necessary.”

For more of his commentary, click here.
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