Walgreens Needs More Help From Its Rite Aid Stores

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Walgreens Boots Alliance Inc. (NASDAQ: WBA) reported fiscal fourth-quarter and full-year 2018 results before markets opened Thursday. The drugstore chain posted adjusted diluted earnings per share (EPS) of $1.48 on net sales of $33.4 billion. In the same period a year ago, Walgreen reported EPS of $1.31 on revenue of $30.15 billion. Fourth-quarter results also compare to the consensus estimates for EPS of $1.45 and $33.78 billion in sales.

For the full fiscal year, Walgreens reported adjusted EPS of $6.02 on sales of $131.5 billion, compared with fiscal 2017 EPS of $5.10 and revenues of $118.21 billion. Analysts had forecast $5.98 in EPS and $131.86 billion in revenues.

Walgreens provided initial guidance for fiscal year 2019 with today’s report. The company estimates adjusted EPS will grow by 7% to 12% in constant currency year over year to a range of $6.40 to $6.70. Guidance assumes approximately $3 billion in stock buybacks under the company’s $10 billion share repurchase program.

The company’s U.S. retail pharmacy division posted fourth-quarter sales of $25.5 billion, an increase of 14.4% year over year. Total same-store sales rose 0.3% in the quarter. Pharmacy sales accounted for nearly three-quarters (73.6%) of the division’s revenue, up 16.7% year over year to around $18.77 billion. The increase was attributed to higher volume resulting from the acquisition of 1,932 Rite Aid stores that was completed earlier this year. Same-store pharmacy sales rose 1.3%, reflecting the higher volume.

Quarterly U.S. non-pharmacy retail sales dropped by 1.9% year over year, even though total sales were 8.3% higher due to the Rite Aid acquisition. Walgreens noted declines in sales of consumables, general merchandise and personal care products, partially offset by growth in health and wellness and beauty products.

Sales in the company’s international retail pharmacy business dropped 1.9% year over year in the fourth quarter and were down 2.7% on a constant currency basis. Same-store pharmacy sales were down 3.4% and retail sales were down 0.9% due to a drop in Boots UK beauty products sales.

CEO Stefano Pessina said:

We are pleased to have delivered double digit percentage growth in earnings per share while returning $6.8 billion to shareholders through share repurchases and dividends in fiscal 2018. The integration of the acquired Rite Aid stores is on track, and our pharmacy market share in the U.S. increased year-over-year on an annual basis. We are making progress on our partnership strategy both in the U.S. and internationally, including our most recent announcements with LabCorp, Kroger and Alibaba, which will provide additional opportunities for future growth.

There might have been a worse day than today to report results, but it would be hard to find. The Dow dropped more than 3% on Wednesday and premarket trading this morning has the blue-chip index down nearly another full point. Even the relatively small miss on revenues will be costly for Walgreens investors today.

Walgreens shares traded down about 2.5% in premarket trading Thursday, at $70.50, in a 52-week range of $59.07 to $80.68. The 12-month consensus price target was $73.61 before today’s results were announced.