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WBA’s Q2 sees US pharmacy growth meet industry pressures

Despite posting solid sales gains — an increase of 4.6% that brought total sales to $34.5 billion — and strong retail pharmacy performance in the United States, Walgreens Boots Alliance came up against industry-wide headwinds in its fiscal second quarter. The company’s executive vice chairman and CEO Stefano Pessina attributed difficulties to reimbursement pressure and lower deflation, as well as ongoing U.S. and U.K. consumer market challenges, calling it “the most difficult quarter we have had since the formation of Walgreens Boots Alliance.”

On a constant-currency basis, including the benefit from acquired Rite Aid Stores, WBA’s sales increased by 6.7%. The company’s net earnings decreased to $1.2 billion — down 14.3% from the prior-year period. Net earnings per share decreased 8.3% from the prior year, coming in at $1.24. Adjusted operating income decreased by 11.9% to $1.45 billion.

Pessina said the company would be pursuing various efforts to counteract headwinds, including senior appointments to help speed up the business’ digitization and transformation.

“This will include expediting the execution of our partnership initiatives, fully developing our in-store neighborhood health destinations, re-imagining our front-end retail offering, optimizing our store footprint and increasing the annual savings goal of our transformational cost management program from in excess of $1 billion to more than $1.5 billion,” Pessina said. “As a result of these actions, our business model will deliver improved performance in fiscal 2020, positioning us for mid-to-high single-digit growth in adjusted EPS in the following years.”

WBA’s Retail Pharmacy USA segment showed largely positive trends in Q2. With its market share boosted by the Rite Aid stores acquisition to 22.3%, the segment’s sales increased 7.3%, totaling $26.3 billion, with organic sales growth at 1.6% when excluding acquired Rite Aid stores. The division’s revenue was 71.9% comprised of pharmacy sales — an increase of 9.8% over a year ago that WBA said reflects higher script volume from acquired Rite Aid stores, central specialty growth and 1.9% comparable pharmacy sales growth. Retail sales grew 1.3% over the year-ago period, with comparable retail sales down 3.8%. WBA said this partially was due to a weaker cold and flu season than in its prior fiscal year, as well as the de-emphasis of such products as tobacco and a decline in seasonal merchandise sales. Despite good performance, the segment’s gross profit decreased 3.2% from the prior-year quarter, which the company primarily attributed to pharmacy reimbursement difficulties.

The company’s international retail pharmacy segment saw a 7.1% decrease in sales, which came in at $3.1 billion, reflecting a 5.9% adverse currency impact. On a constant-currency basis, sales decreased 1.2%, which WBA largely attributed to a 1.3% decline in Boots UK. Gross profit decreased 8.9% from the year-ago period, with adjusted gross profit down 1.2% on a constant-currency basis.
WBA’s pharmaceutical wholesale segment saw second-quarter sales stay nearly flat, declining 0.3% to $5.7 billion. The company attributed a 9.4% impact to adverse currency pressures. Operating income for the segment was $100 million, including $83 million from the company’s equity earnings in AmerisourceBergen.

For the year, the company reduced its outlook from 7%-to-12% adjusted EPS growth to roughly flat based on constant currency rates. On a reported currency basis, WBA projected a $0.04 adverse currency impact.
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