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With Rite Aid deal on track, Walgreens Boots Alliance posts Q3 sales of $29.5 billion, up 2.4%

BY Michael Johnsen

DEERFIELD, Ill. — Walgreens Boots Alliance on Wednesday reported an adjusted net earnings increase of 14.7% to $1.3 billion for its third quarter ended May 31. Net sales in the third quarter were $29.5 billion, an increase of 2.4% over the year-ago quarter, or 3.3% on a constant currency basis.

Walgreens Boots Alliance's Retail Pharmacy USA division had third quarter total sales of $21.2 billion, an increase of 3.7% over the year-ago quarter. Sales in comparable stores increased 3.9% compared to the same quarter a year ago.

“We delivered solid results in the quarter while continuing to make progress in several key areas, including our work to develop long-term strategic relationships and pursue partnership opportunities," stated Stefano Pessina, Walgreens Boots Alliance executive vice chairman and CEO. "I’m pleased to report that since the quarter end we achieved our goal set four years ago of at least $1 billion in combined net synergies in fiscal year 2016 related to the strategic combination with Alliance Boots. This provides us with a strong platform to further enhance operating performance, to meet the challenges of the current volatility in many of our markets and to better position our company for long-term success.”

Combined net synergies were $330 million in the fiscal 2016 third quarter and $947 million in the first nine months of fiscal 2016. In June, the company achieved its goal set in 2012 to reach at least $1 billion in combined net synergies in fiscal 2016 relating to the strategic combination with Alliance Boots. This excludes the synergy benefits related to the company’s strategic, long-term relationship with AmerisourceBergen, the benefits of refinancing the legacy Alliance Boots indebtedness at a lower cost and the proposed Rite Aid acquisition.

Adjusted net earnings attributable to Walgreens Boots Alliance per diluted share for the quarter increased 15.7% to $1.18 compared to the same quarter a year ago. Fiscal 2016 third quarter earnings adjustments were a net increase to GAAP net earnings attributable to Walgreens Boots Alliance of $185 million or 17 cents per diluted share.

Walgreens Boots Alliance GAAP operating cash flow totaled $2.1 billion in the third quarter, while the company generated free cash flow of $1.9 billion in the quarter.

Walgreens Boots Alliance’s proposed acquisition of Rite Aid Corporation, which was announced Oct. 27, 2015, is progressing as planned, the company stated. Walgreens Boots Alliance is continuing its integration planning and continues to expect the Rite Aid transaction to close in the second half of calendar 2016.

The company raised the lower end of its guidance for fiscal year 2016 by 10 cents per share and now anticipates adjusted net earnings per diluted share attributable to Walgreens Boots Alliance of $4.45 to $4.55.

Pharmacy sales across Walgreens Boots Alliance's Retail Pharmacy USA division, which accounted for 67.4% of the division’s total sales in the quarter, increased 5.8% compared with the year-ago quarter, while comparable pharmacy sales increased 6%. The division filled 235 million prescriptions (including immunizations) adjusted to 30-day equivalents in the quarter, an increase of 3.9% over last year’s third quarter.

Prescriptions filled in comparable stores increased 4.5% compared with the same quarter last year, primarily due to continued growth in Medicare Part D volume. The division’s retail prescription market share on a 30-day adjusted basis in the third quarter increased approximately 30 basis points over the year-ago quarter to 19.6%, as reported by IMS Health.

Comparable retail sales increased 0.1% in the third quarter compared with the year-ago period, primarily due to higher sales in the health and wellness and photo categories, partially offset by declines in certain convenience categories. The division is focused on profitable sales growth in future quarters, in part through a new, differentiated beauty offering. The first phase of these updates is in progress, with a rollout to more than 1,800 stores by the end of calendar 2016.

Retail Pharmacy International had third quarter total sales of $3.2 billion, a decrease of 2.3% over the year-ago quarter due to currency translation, with total sales increasing by 3.4% on a constant currency basis.

Pharmaceutical Wholesale had third quarter total sales of $5.7 billion, an increase of 0.7% over the year-ago quarter. In April, the company sold Alliance Healthcare Russia to the Russian health and beauty retailer 36.6 in return for a 15% stake in the combined group. On a constant currency basis, excluding acquisitions and dispositions, comparable sales increased 6.3%. This was ahead of the company’s estimate of market growth weighted on the basis of country wholesale sales, and was particularly strong in a number of emerging markets, Walgreens Boots Alliance reported.

 

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Survey: Back-to-school spending increases — but not across the board

BY Dan Berthiaume
Parents are opening their wallets for the upcoming academic year, but being selective in what, where and how they buy.
 
According to a new survey of parents of children in grades K-12 and children entering their freshman year of college by The Rubicon Project, more than a third of all parents (34%) and nearly half of college freshman parents in particular (49%) — have already started back-to-school shopping. Sixty-one percent of all parents plan to spend more than they did last year, spending approximately $917 per child on average. Freshmen parents plan to spend $1,378 per child, almost twice the $684 the average K-12 parent plans to spend.
 
This year, parents plan to spend the bulk of their increased back-to-school budget on tech-related items. While school supplies and apparel remain top priorities, the biggest budget item for both K-12 ($343) and college freshmen parents was technology ($470). For K-12 parents, apparel ($233) was the second-largest spend, while dorm supplies ($324) were second-biggest expenditure for parents of college freshmen.  
 
For the first time most parents plan to skip brick-and-mortar outlets for their tech purchases picking Amazon as their go-to retailer for technology-related items. Sixty percent of all parents surveyed plan to use mobile devices for some back to school shopping — 30% plan to do at least a quarter of their total shopping on mobile devices.
 
When it comes to how they will shop, more than half of parents surveyed plan to shop for technology and telecommunications online, while apparel, school supplies, and food and beverage remain primarily brick-and-mortar shopping purchases.
 
Amazon claimed the top spot for technology as parents increasingly turn to the online retailer for major purchases such as laptops, tablets and other devices. Wal-Mart remained the top retailer for apparel (66%) and school supplies (77%). For K-12 parents, Amazon has moved ahead of Staples as the third-most-popular destination for school supplies compared with 2015, when Staples accounted for 39% and Amazon 38% of spend in this category.
 
Nearly one-third (30%) of parents surveyed will do at least 25% of their back-to-school shopping on a mobile device, with parents of college freshmen (42%) significantly outpacing K-12 parents (25%). Dads outpace moms in mobile purchasing as 41% of dads said they will do at least a quarter of their online shopping on a mobile device, compared to just 24% of moms.
 
Not surprisingly, retailer mobile applications are becoming increasingly popular as almost half of parents surveyed (47%) have the Amazon mobile application and 40% of college-bound freshmen parents utilize at least three shopping apps. Seventy-one percent of parents plan to use retailer apps before they make a purchase. Sixty-six percent use mobile apps to compare prices while 64% use them to find out about sales.
 
Parents are also becoming increasingly comfortable with in-app purchases, with more than a third of all parents allowing their children to make them.
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NRF: Consumers want swipe fee status quo

BY Dan Berthiaume

The people have spoken – and they like limits on debit card swipe fees the way they are.
 
According to new data from the National Retail Federation (NRF), 89% of consumers want to maintain Federal Reserve limits on the fees banks charge retailers and their customers when they use a debit card to pay for purchase. In addition, 84% say swipe fees should be set on a competitive basis rather than letting credit card companies set their own fees that virtually all the banks that issue their credit and debit cards charge.
 
The NRF has been actively opposing a proposal from the head of the House Financial Services Committee to repeal a cap on debit card swipe fees. According to the NRF, the fees have saved consumers billions of dollars over the past five years.
 
Since October 2011, swipe fees for debit cards issued by the nation’s largest banks have been capped at 22 cents per transaction plus 0.05% of the purchase price, or just under a quarter in most cases. Before the Fed acted, NRF data indicates the swipe fee on an average debit purchase was typically about 45 cents, but it could add $10 to $20 to the price of a large purchase like an airline ticket or big-screen TV. The NRF says the cap is still far higher than the average 4 cents the Fed estimates it costs banks to process a debit transaction.
 
“The truth is that the debit card swipe fee cap has been a win for consumers, retailers and the nation’s economy by sharply reducing a hidden tax collected by the banks,” Mallory Duncan, senior VP and general counsel for the NRF, said in a press release. “Repealing it would be a win for no one but the banks.”

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