Walgreens pledges to further sharpen U.S. operations following strong Q2
DEERFIELD, Ill. — Walgreens Boots Alliance on Thursday reported quarterly earnings for the first time as a merged company, posting $21 billion in sales across its U.S. retail operations, up 7.4%, for its second quarter ended Feb. 28.
The news generated a slight lift in Walgreens Boots Allliance shares with an approximate 40-cent climb to $87.68 per share in pre-market trading. According to reports, the operation's better-than-expected profit and same-store sales figures offset a miss in total revenue.
“This quarter marked a solid start for our new company, and I remain as optimistic as ever about our long-term future," stated Stefano Pessina, executive vice chairman and acting CEO Walgreens Boots Alliance.
Total sales in comparable stores increased 6.9% compared with the same quarter a year ago. Retail comparable-store sales increased 2.5% in the second quarter with improved retail product margins compared with last year’s second quarter.
Pharmacy sales, which accounted for 64.4% of division sales in the quarter, increased 10.1% compared with the year-ago quarter, while pharmacy sales in comparable stores increased 9.7%. The division filled 224 million prescriptions (including immunizations) on a 30-day adjusted basis in the quarter, an increase of 4.8% over last year’s second quarter.
Prescriptions filled in comparable stores increased 5% compared with the same quarter last year, driven by the positive impact of a strong cough, cold and flu season, continued growth in Medicare Part D prescriptions and market growth. The division’s retail prescription market share in the United States on a 30-day adjusted basis increased 20 basis points over a year ago to 19.3%, as reported by IMS Health.
The division opened 71 new drug stores in the first half of fiscal 2015, including 25 relocations, and closed 46 locations. As of Feb. 28, the division operated 8,232 drug stores across all 50 states, Washington, D.C., Puerto Rico and the U.S. Virgin Islands.
However, there are many changes ahead for Walgreens in the U.S. market, Pessina said. "We understand the work that is needed to proactively address headwinds, such as reimbursement pressure and competition. Our work includes several key areas of focus to create value," he said. “The first area is improving the performance of our businesses worldwide with an emphasis on operations. Second, we will be refreshing and reinvesting in the stores of our Retail Pharmacy USA division to improve the customer experience and expand retail margins. Third, we are restructuring our cost base, with a focus primarily in the United States, to create a more efficient cost model and become a more agile company. Through these efforts, Walgreens Boots Alliance is determined to lead the way in our industry and be at the forefront of innovative, pharmacy-led health care.”
To date, Walgreens Boots Alliance has targeted the closure of 200 Walgreens locations on its way to a projected $1.5 billion in cost savings by the end of fiscal 2017. The company is also in the process of reorganizing its corporate and field operations in the United States.
Walgreens Boots Alliance projected full-year adjusted earnings guidance for fiscal 2015 with anticipated adjusted net earnings attributable to Walgreens Boots Alliance of $3.45 to $3.65 per share on a diluted basis for the full fiscal year. The company also reaffirmed its goal of adjusted earnings per share of $4.25 to $4.60 for fiscal year 2016.
Net sales for Walgreens Boots Alliance in the second quarter increased 35.5% to $26.6 billion compared with the same quarter a year ago, largely due to the inclusion of Alliance Boots for January and February. Net sales in the first six months of fiscal 2015 increased 21.6% to $46.1 billion compared with the same period a year ago.
The Retail Pharmacy International division, whose principal retail brands are Boots in the United Kingdom, Thailand, Norway, the Republic of Ireland and The Netherlands; Benavides in Mexico; and Ahumada in Chile, had second-quarter sales (comprising the post-merger months of January and February) of $2 billion. On a pro forma constant currency basis, comparable-store sales in January and February increased 2.9% compared with the same period a year ago. As of Feb. 28, the division operated 4,559 pharmacy-led health and beauty retail stores in eight countries.
The Pharmaceutical Wholesale division, which mainly operates under the Alliance Healthcare brand, had second-quarter sales (comprising the post-merger months of January and February) of $3.9 billion. On a pro forma constant currency basis, sales were relatively flat compared with the same period a year ago.
Walgreens Boots Alliance also announced that its board is progressing in its search for a permanent CEO as its search committee works with a top executive recruiting firm. Executive chairman Jim Skinner said, “While we work through this process in a deliberate and methodical manner to fill such a critical role, we are making the necessary business decisions to move us forward and will continue to do so while we find the right candidate.”
As a result of the combination of Walgreens and Alliance Boots, a number of items affect the comparability of results for the company. Historically, Walgreens operations were within one reportable segment that included the results of Walgreens and corporate costs, along with the full consolidated results of Walgreens Boots Alliance Development and equity earnings from Walgreens 45% interest in Alliance Boots (on a three-month reporting lag).
With the combination of the two companies on Dec. 31, Walgreens Boots Alliance has organized its operations and is reporting results in three segments: Retail Pharmacy USA, Retail Pharmacy International and Pharmaceutical Wholesale.
Walgreens Boots Alliance next week will host its 2015 Analyst Day in New York at the Ritz Carlton Hotel Battery Park on April 15 and 16, beginning at 8 a.m. EDT both days. The first day will include an overview of the company’s operations and strategy from senior leadership of Walgreens Boots Alliance. The second day will consist of a half-day session to review financial performance and provide management’s perspective regarding key financial variables.
Drug Store News
will be following Walgreens Boots Alliance's analyst day live on Twitter. Follow @DSN_MikeJohnsen
for up-to-the-minute coverage of the event.