Walgreens on pace to shutter 600 US stores

Dive Brief:

Walgreens Boots Alliance on Wednesday reported second quarter sales rose 12.1% to $33 billion, or 9.4% on a constant currency basis.
Retail pharmacy U.S. sales climbed 12.2% in the quarter to $24.5 billion, as same-store sales rose 2.4%. Retail sales fell 0.7% and same-store retail sales fell 2.7% in the quarter, missing Evercore analyst Ross Muken’s estimate, cited by Reuters, for a flat result.
The company expects to close roughly 600 U.S. stores and related assets over an 18-month period, starting this month. That will incur approximately $450 million in pre-tax charges, but cost savings could reach $300 million each year through 2020.

Dive Insight:

In the U.S., Walgreens continues to rely on pharmacy sales to support the weaker retail front. In the aftermath of the drugstore's failed takeover of rival Rite Aid, the company is focused on rationalizing its footprint in the U.S. and containing expenses. Despite the merger’s breakdown, by the end of the quarter Walgreens had completed the acquisition of 1,932 Rite Aid stores, and the transition of three Rite Aid distribution centers and related inventory will begin during fiscal 2019, according to a statement.

"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," CEO Stefano Pessina said in a statement on Wednesday. "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."

The company now anticipates adjusted diluted net earnings of $5.85 to $6.05 per share, which assumes current exchange rates and includes an expected benefit from the U.S. tax reform marginally higher than the previously estimated $0.35 per share. Walgreens expects a cash tax benefit from tax reform to exceed $350 million for fiscal year 2018, up from its previous estimate two months ago of more than $200 million, the company said.

Fortunately for Walgreens, pharmacy sales in the U.S. surged 18.7% and accounted for 70.3% of the division's sales in the quarter.

"Walgreens' quarterly earnings were strong, despite continuing reimbursement pressure, and continue to be driven by increase in prescription volumes," according to comments from Moody’s Investors Service Vice President Mickey Chadha emailed to Retail Dive. "As expected front end of the store remains weak … However, about 70% of the company’s sales in the U.S. are derived from the pharmacy, and the aging U.S. population is a tailwind for prescription volumes which bodes well for future growth."