Walgreens on Thursday reported that fourth quarter sales rose 10.9% to $33.4 billion. Operating income in the quarter rose 35.6% to $1.5 billion, and adjusted operating income rose 0.1% to $1.88 billion, missing Wells Fargo analysts' forecast for $2.01 billion, according to a note emailed to Retail Dive. Shares remained down on Friday on the miss.
While the company's U.S. retail operations in the quarter did better than its U.K. stores, comparable retail sales fell 1.9%, with declines in consumables and general merchandise, and personal care, partially offset by growth in health and wellness, and beauty. U.S. retail sales rose 8.3% year over year, reflecting Walgreens' acquisition of Rite Aid stores, according to a company press release.
The drugstore retailer is looking to forge more partnerships like those with Birchbox, Kroger and Alibaba, Co-Chief Operating Officer Alex Gourlay said on a conference call, according to a transcript from Seeking Alpha. The most recent, an expansion of the company's collaboration with LabCorp patient service centers from 17 stores to 600 over the next four years, was announced Wednesday. Together, the tie-ups "are all great examples of our partnership strategies," he said.
Major growth in pharmaceutical prescriptions in the U.S. is driving sales at Walgreens Boots Alliance, as its retail operations continue to falter.
"Walgreens fourth quarter results continue to show weakness in front end sales which have been weak for the drug store sector as a whole as general merchandise and personal care categories face stiff competition from other retailers and e-commerce," Moody's Investor Service Vice President Mickey Chadha said in comments emailed to Retail Dive.
The retailer, and rival CVS, "suffer from a bias towards healthcare and health services," GlobalData Retail Managing Director Neil Saunders said in a note emailed to Retail Dive. "As much as we applaud the efforts the companies make in that important arena, there is no reason why they cannot make the same effort in the retail parts of their business," he said. "This is especially true for Walgreens which has the expertise of Boots where, unlike U.S. drugstores, there is strong expertise in retail."
Neglecting the retail side doesn't just tamp down sales from that end of the store, but also has wider implications for the company overall, he said, noting that a more compelling retail side would help draw people into the store and could balance revenue if pharmacy sales see pressure, as Saunders believes they could.
The retailer's partnership with Birchbox is both good and bad, according to Saunders, a reflection of its effort to improve its own uninspiring beauty merchandising and a sign that it hasn't been able to upgrade that itself. "With the strong brands it has available via the Boots side of the business, Walgreens should be developing its own elevated beauty offer or, indeed, its own version of a subscription type service," he said. "That it isn't is a major lost opportunity and is one of the reasons why Walgreens continues to lose market share to players like Ulta and Sephora."
Overall, though, the company is in a good position, according to Wells Fargo analysts led by Peter Costa."We view Walgreens as well poised to benefit from rising use of pharmaceuticals on an aging population and need to control costs in health care," he wrote. "Walgreens' strategic partnerships with suppliers and payors ... combined with a portfolio of well-regarded beauty brands, likely position it well to gain share and drive solid earnings growth."