Rite Aid finalizes transfer of stores to Walgreens Boots Alliance
Rite Aid on Tuesday finalized the transfer of 1,932 stores and related assets to Walgreens Boots Alliance in return for $4.2 billion. The transfer of the three distribution centers and related inventory is expected to begin after Sept. 1, 2018.
The majority of the closing conditions have been satisfied, and the transfers of Rite Aid distribution centers and related assets remain subject to minimal customary closing conditions applicable only to the distribution centers being transferred at such distribution center closing.
As part of its quarterly earnings report, Walgreens on Wednesday noted that the newly-transferred Rite Aid stores will be a significant tailwind behind pharmacy results. “We expect to continue to grow, in part through the recent acquisition of stores from Rite Aid, and today we are raising our fiscal 2018 guidance,” Stefano Pessina, executive vice chairman and CEO of the Deerfield, Ill.-based retailer, said.
Walgreens raised the lower and upper ends of its guidance for fiscal 2018 and now anticipates adjusted diluted net earnings per share of $5.85 to $6.05.
Rite Aid also announced that its board of directors has terminated the tax benefits preservation plan that it adopted on Jan. 3, 2018. As a result of the Plan, Rite Aid protected approximately $2.2 billion of Rite Aid’s net operating losses. The Plan was originally scheduled to expire on Jan. 3, 2019.
Walgreens’ U.S.-based pharmacy ops drive Q2 growth
Walgreens Boots Alliance on Wednesday posted sales of $33 billion for its second quarter ended Feb. 28, an increase of 12.1% from the year-ago quarter, and an increase of 9.4% on a constant currency basis.
“Our growth strategy of increasing and consolidating volume, differentiating ourselves through value and quality of service, and controlling costs is bearing fruit across our businesses,” Stefano Pessina, executive vice chairman and CEO of the Deerfield, Ill.-based retailer, said. “This is reflected in another good set of financial results in which we delivered the highest sales growth in eight quarters, as well as strong cash generation and record U.S. pharmacy market share. We expect to continue to grow, in part through the recent acquisition of stores from Rite Aid, and today we are raising our fiscal 2018 guidance.”
Shares of Walgreens Boots Alliance were up $2.54 to $68.50 in pre-market trading as the Chicagoland retailer beat analyst estimates. According to reports, Wall Street had expected the pharmacy operator to report earnings per share of $1.55, up 14%, with revenue increases of 9% to $32 billion.
In addition to beating revenue expectations by $1 billion, Walgreens Boots Alliance earned $1.73 a share.
Retail Pharmacy USA had second quarter sales of $24.5 billion, an increase of 12.2% over the year-ago quarter. Sales in comparable stores increased 2.4%.
Pharmacy sales, which accounted for 70.3% of the division’s sales in the quarter, increased 18.7% compared with the year-ago quarter, primarily due to higher prescription volume including central specialty and mail following the formation of AllianceRx Walgreens Prime and from the acquisition of Rite Aid stores.
Comparable pharmacy sales increased 5.1%, primarily due to higher volume. The division filled 269.2 million prescriptions (including immunizations) adjusted to 30-day equivalents in the quarter, an increase of 9.1% over the year-ago quarter. Prescriptions filled in comparable stores increased 4% compared with the same quarter a year ago, primarily due to volume growth from previously announced strategic pharmacy partnerships and Medicare Part D growth.
Retail sales decreased 0.7% in the second quarter compared with the year-ago period. Comparable retail sales were down 2.7% in the quarter.
As of the end of the second quarter the company had acquired 1,542 Rite Aid stores under the previously announced amended and restated asset purchase agreement. Since the end of the quarter the company completed the acquisition of all 1,932 stores. The transition of three distribution centers and related inventory is expected to begin during fiscal 2019.
The company continues to expect to complete integration of the acquired stores and related assets by the end of fiscal 2020, as previously announced.
As part of a program to optimize locations, the company continues to expect to close approximately 600 stores and related assets over an 18-month period. Cost savings from the program are still anticipated to be approximately $300 million per year and are still expected to be fully delivered by the end of fiscal 2020.
As Pessina mentioned, Walgreens raised the lower and upper ends of its guidance for fiscal 2018 and now anticipates adjusted diluted net earnings per share of $5.85 to $6.05. The company now expects to obtain a cash tax benefit from the U.S. tax law changes in excess of $350 million for fiscal year 2018, compared with the previous estimate, announced in January, of more than $200 million.
WBA’s Retail Pharmacy International division posted second quarter sales of $3.3 billion, an increase of 7% from the year-ago quarter due to currency translation. Sales decreased 2.6% on a constant currency basis. Meanwhile, the company’s Pharmaceutical Wholesale division realized second quarter sales of $5.8 billion, an increase of 14.4% from the year-ago quarter, mainly due to currency translation.
Report details just how Amazon could disrupt healthcare
Amazon is entering healthcare — and healthcare may never be the same.
That’s the takeaway from a new report by global management consulting firm L.E.K Consulting, which said the online giant has the right skills and capabilities to follow through on its big healthcare-industry ambitions and will launch offerings that range from mail-order pharmacy to AI-based diagnostics. (Amazon in late January announced its entry into the healthcare field through an alliance with JP Morgan Chase and Berkshire Hathaway.)
“They (Amazon) have repeatedly shown that they have the capabilities, the patience, and the deep pockets to disrupt industry after industry,” said Rob Haslehurst, managing director at L.E.K. “Healthcare is no exception.”
Amazon already has many of the core competencies needed to compete in healthcare. These include ready access to capital, a massive distribution infrastructure, a strong technology base, a robust data analytics capability, and a deep, talented executive bench that, “like Bezos himself, is relentless, resourceful, fast, inventive and customer-obsessed,” said Haslehurst.
The report outlined five scenarios as to how Amazon is likely to enter and dominate health care.
“They’re not mutually exclusive — in fact, they represent a roadmap that Amazon can follow to move continually deeper into the healthcare industry,” said L.E.K. managing director and report co-author Joseph Johnson. “All of them illustrate Amazon’s ability to drive down prices and margins while fundamentally transforming customer behavior.”
Amazon’s possible points of entry are:
• Durable medical equipment and medical supplies. “This is a no-brainer because Amazon is already there,” said Johnson. “It currently sells a broad array of general medical supplies and durable medical equipment (DME) to consumers.”
Amazon’s core competencies in logistics and distribution, and its existing B2B e-commerce platform will allow it to easily expand into hospital and provider supply, disrupting the traditional group purchasing organization (GPO) contract model. Amazon has already obtained licenses to distribute medical supplies to providers in 43 states.
• Mail order and retail pharmacy. Amazon has secured approval as a wholesale distributor from 12 state pharmaceutical boards. Drug storage is a hurdle, and there are regulatory challenges. But Amazon can work through them. It can also build pharmacies into its recently-acquired Whole Foods stores.
The company can also take advantage of its predictive analytics and customer data capabilities to build digital health tools that track and influence patient behavior — giving it a leg up over traditional pharmacy in working with the most challenging areas of healthcare delivery.
• Pharmacy benefit manager. Amazon’s most likely move into the field will be by partnering with a large PBM such as Express Scripts or by buying a smaller player like Prime Therapeutics. Amazon would gain a pharmacy network and a claims adjudication capability, and its partner would gain access to millions of Amazon Prime members.
• Telemedicine or in-home health care. Amazon’s Echo smart speaker (with 20 million units sold to date) and Alexa, its voice-controlled personal assistant service, give it an enormous platform for new voice-activated services. Healthcare could easily be among them. Bezos has talked publicly about the role for Alexa in the future of healthcare delivery. Alexa’s first step would be to help book physician visits. But thanks to Echo Show’s video capabilities, the next move might be in-home virtual house calls.
• AI-powered diagnostics and continuous care. Amazon’s “final frontier” in healthcare could be fully automated, AI-driven, in-home healthcare and diagnostics.
“Amazon has deep AI capabilities — machine-learning already drives many of its offerings, from its customer recommendation engine to its service centers,” said Johnson. “It would be only logical to harness that capability to diagnostics. And in fact, this has already started — Alexa now delivers first-aid information and voice-driven self-care instructions in an offering introduced by the Mayo Clinic. It wouldn’t be a stretch to add first-line diagnostic information, provide medication reminders, and auto-refill prescriptions.”
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