Walgreens retail sales decline overshadows pharmacy business strength

Walgreens Boots Alliance Inc’s quarterly profit and sales beat analysts’ estimates on Wednesday helped by higher prescription volumes, but concerns surrounding its retail business played on investors’ minds.

Shares of the company that rose as much as 3.1 percent in early trading, pared gains to trade up just 0.3 percent at $66.56 later in the morning.

Like other drugstore chains, Walgreens is seeing a drop in customer visits to its retail stores, where it sells over-the-counter drugs and cosmetics, as purchases have now shifted online.

To stanch falling sales at retail - its front-end business - the company has focused on boosting sales through its prescription only pharmacy business by signing partnerships with pharmacy benefit managers such as Prime Therapeutics that has given it more than 20 million additional customers.

Walgreens is also pulling non-profitable items off shelves at its front-end stores and promoting store-brands to boost margins.

The efforts came at a cost - same-store sales at its retail stores fell 2.7 percent in the quarter, continuing a nearly two-year slide. Analysts had expected flat growth.

“The Street is panicked about poor retail activity, panicked about Amazon. When they don’t quantify what the impact of their rationalization decisions (are), they shoot themselves in the foot. The stock should be up a lot more”, Baird analyst Eric Coldwell told Reuters.

Walgreens said it did not see much of an uptick in prescription volumes during one the harshest flu-season in the United States in decades, surprising analysts who expected the rise in flu shots to have boosted sales significantly.

To simply say ‘flu was pretty normal’ and not quantify it was a big mistake,” Coldwell added.
Same-store sales at its pharmacies rose 5.1 percent, but missed analysts expectations for a 5.4 percent rise, according to four analysts polled by Thomson Reuters I/B/E/S.

Walgreens filled 9.1 percent more prescriptions in the quarter, but that was mainly driven by customers seeking higher-priced specialty drugs.

Deerfield, Illinois-based Walgreens lifted its full-year adjusted earnings forecast to between $5.85 and $6.05 per share from between $5.45 and $5.70 per share. Analysts were estimating $5.78 per share for the year.

The raise in forecast reflects a $350 million tax benefit for fiscal year 2018, an increase of about $150 million from the company’s previous estimate.

Excluding items, Walgreens earned $1.73 per share. Net sales rose 12 percent to $33.02 billion.

Analysts on average were expecting a profit of $1.55 per share on revenue of $32.19 billion.