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.
Rite Aid’s strong fiscal results portend significant growth in year ahead
CAMP HILL, Pa. — Rite Aid on Wednesday reported $26.5 billion in revenues, representing a lift of 3.9%, and net income of $2.1 billion, or $2.08 per diluted share for the fiscal year ended Feb. 28.
"In the fourth quarter, our strong growth in same-store sales and prescription count, as well as strong cost control, helped drive continued profitability," said Rite Aid chairman and CEO John Standley. "These positive results contributed to a successful year in which we took significant steps to further position Rite Aid as a retail healthcare company."
One of those steps included the expansion of Rite Aid's distribution agreement with McKesson. "This five year extension provides Rite Aid with daily direct-to-store delivery and allowed McKesson to assume responsibility for the sourcing and distribution of generic pharmaceuticals," noted Brent Miller, Seeking Alpha contributor. "The more committed relationship between the two companies created greater supply chain efficiencies for Rite Aid by improving in-stock positions, as well as reducing purchasing costs."
Other significant fiscal 2015 highlights include the acquisition of pharamcy benefit manager EnvisionRx, which includes some 21 million patients for Rite Aid to manage, the introduction of its RediClinic operations into the Philadelphia and Washington, D.C./Baltimore markets and its commitment to its Wellness format.
"The company continued their efforts to transition more stores to the new Wellness format," Miller wrote. "The Wellness format concentrates on adding Wellness Ambassadors, improved pharmacist accessibility and interactive kiosks. By the end of the third quarter, 1,259 stores out of total 4,570 were converted to this new format," he noted. "Shortly after the conclusion of fiscal year 2015, the company opened their first net-new store built from the ground since 2010. Between 2010 and 2015, the company was largely concentrating on remodeling stores and converting them to the Wellness format noted above. This 14,500-plus sq. ft. is a huge step forward for the company, as I believe it is symbolic of the management's positive outlook."
Same-store sales for the year increased 4.3% consisting of a 5.8% increase in pharmacy sales and a 1.2% increase in front-end sales. Pharmacy sales included a negative impact of approximately 175 basis points from new generic introductions. The number of prescriptions filled in same stores increased 3.5% over the prior year period. Prescription sales accounted for 68.8% of total drug store sales, and third-party prescription revenue was 97.5% of pharmacy sales.
For the fourth quarter, the company reported revenues of $6.8 billion, up 3.8%, and net income of $1.8 billion, or $1.79 per diluted share. Same-store sales for the quarter increased 4.5% over the prior year, consisting of a 5.7% increase in pharmacy sales and a 2% increase in front-end sales. Pharmacy sales included a negative impact of approximately 128 basis points from new generic introductions. The number of prescriptions filled in same stores increased 3.5% over the prior year period. Prescription sales accounted for 68.1% of total drug store sales, and third-party prescription revenue was 97.5% of pharmacy sales.
Looking forwared to fiscal 2016, Rite Aid said it expects sales to be between $26.9 billion and $27.4 billion with same-store sales expected to range from an increase of 2.5% to an increase of 4.5% over fiscal 2015.
The Pennsylvania pharmacy operator already has a strong head start, most recently reporting overall same-store sales increases of 4.3% for the month of March.
Adjusted EBITDA is expected to be between $1.25 billion and $1.35 billion.
Net income for fiscal 2016 is expected to be between $190 million and $275 million or income per diluted share of $0.19 to $0.27. This guidance is net of estimated income tax expense of between $130 million and $180 million, or $0.13 to $0.18 per diluted share, respectively.
Capital expenditures are expected to be approximately $650 million.
The company's outlook for fiscal 2016 is based on the anticipated benefits of its Wellness remodels, a full year of benefits from the pharmacy sourcing arrangement with McKesson and other initiatives to grow sales and drive operational efficiencies. The company's outlook also considers planned wage and benefit increases, the introduction of certain new generics and a reimbursement rate environment that is expected to continue to be challenging.
The outlook does not consider the impact of the EnvisionRx acquisition due to the uncertainty as to when the transaction will close. The company's outlook also reflects an increase in income tax expense compared with fiscal 2015, which included an income tax benefit from the reduction of the deferred tax asset valuation allowance. The company expects cash tax payments to remain in a range of $10 million to $20 million for fiscal 2016 as it will continue to be able to utilize its tax net operating loss carry forward.
For the year, the company relocated 14 stores, acquired 9 stores, remodeled 440 stores, expanded 5 stores, opened two stores and closed 28 stores.
Survey: Generic reimbursement lag an impediment to community pharmacy
ALEXANDRIA, Va. – Patient access to generic prescription drugs and community pharmacies are both increasingly at risk due to inadequate reimbursement rates that fail to cover the cost of filling prescriptions, according to a new survey of 700 community pharmacists conducted by the National Community Pharmacists Association.
“For decades community pharmacists have promoted the appropriate use of generic drugs to lower costs. However, more recently the price for some of these medications has skyrocketed 1,000% or more virtually overnight while reimbursement rates paid to community pharmacists have inexcusably lagged behind for weeks or months,” stated NCPA CEO Douglas Hoey.
“This survey finds that this problem has only grown more severe over the past two years and requires urgent attention from federal and state policymakers,” Hoey added. “Community pharmacies cannot be expected to continually fill many prescriptions at a significant loss. Ultimately patients are impacted as well. Some patients are already skipping medication due to higher prices and copays or are forced into the Medicare coverage gap or ‘donut hole’ sooner. Others will likely find it more difficult to find certain generic drugs at all because their pharmacy can no longer afford to stock and dispense them.”
The new survey asked pharmacists to describe their experiences in this area since an earlier 2013 survey first documented the problem. Among the findings:
- Virtually every pharmacist experienced a “large upswing” in the acquisition cost of a generic drug over the past six months, with approximately 80% stating that this occurred in at least 26 instances during this period;
- 93% said the situation has grown worse since the 2013 survey; and
- The vast majority of pharmacists (87%) said it took one month or longer for reimbursement rates (often MACs or “maximum allowable costs”) to be updated by the insurance plan’s pharmacy benefit manager to reflect market costs. Nearly all pharmacists (92%) said the problem of slow MAC updates has deteriorated since 2013 and that appeals to update reimbursement benchmarks are typically denied or ignored by the PBM.
Respondents were also asked to mention specific drugs and instances of below-cost reimbursement. The most commonly cited medications include Benazepril (high blood pressure); Clomipramine (antidepressant); Digoxin (control heart rate); Divalproex (to treat seizures and psychiatric conditions); Doxycycline (antibiotic); Budesonide (asthma); Haloperidol (psychotic disorders); Hydroxychroloquine (rheumatism arthritis, malaria); Levothyroxine (hypothyroidism); Methylphenidate (Attention Deficit Hyperactivity Disorder);Morphine (pain); Nystatin/Triamcinolone (fungal skin infections); Pravastatin (high cholesterol; heart disease); Tamsulosin (benign prostatic hyperplasia-BPH); and Tizanidine (muscle relaxant).
To mitigate this problem Reps. Doug Collins, R-Ga., and Dave Loebsack, D-Iowa, have introduced H.R. 244, The MAC Transparency Act. It would apply to Medicare Part D, the military’s TRICARE program and the Federal Employees Health Benefits Program and would require MAC benchmarks to be updated every seven days to better reflect market costs and allow pharmacists to know the source by which such benchmarks are set. The Centers for Medicare & Medicaid Services, in response to NCPA’s concerns, issued a final rule in May 2014 to require price updates in Medicare Part D every seven days starting in 2016.
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