Walgreens tumbles as reality sets in
- Walgreens Boots Alliance on Thursday said that third quarter sales rose 14% to $34.3 billion or 11.8% on a constant currency basis, exceeding the Thomson Reuters analyst estimate cited by CNBC for $34.05 billion.
- Retail sales rose 5.2% compared with the year-ago period, as comparable retail sales tumbled 3.8%. In the U.S. in the quarter, retail pharmacy sales rose 15% to $25.9 billion, as store comps fell 1.2% year over year, according to a company press release.
- Net earnings in the quarter rose 15.5% to $1.3 billion, the company said.
Wall Street let out an initial cheer as Walgreens posted a healthy profit boost, but shares fell as investors focused more closely on the numbers.
The top and bottom lines at the drugstore retailer rose, but same-store sales, especially in the front end of the store, are tumbling. In other words, especially when results are adjusted for the company’s new 1,932 Rite Aid stores and currency fluctuations, the good results are really only "on the surface," according to GlobalData Retail Managing Director Neil Saunders.
"While the acquisition of Rite Aid stores is financially helpful, it only serves to mask some of the underlying and entrenched problems on the core retail side of the business," he said in comments emailed to Retail Dive. "[T]he main reason that sales declines haven't moderated is a lack of effort. We maintain our view that Walgreens could and should do much better in front of store retail."
The retailer continues to cede market share in beauty, a winning category that is traditionally a drugstore mainstay but is being gobbled up by specialty players like Ulta and Sephora. Saunders believes that Walgreens' improvements so far to beauty merchandising and assortment at Walgreens stores aren't enough — that's hurting front-of-store sales now but could also impair pharmacy sales as store traffic slows.
Pharmacy sales accounted for 72.5% of the U.S. division's sales in the quarter, rising 19.3% from the year-ago quarter, primarily due to higher prescription volume from the acquisition of Rite Aid stores and from central specialty, the company said. Comparable pharmacy sales were flat from the year-ago quarter, as brand inflation was offset by reimbursement pressure and the impact of generics.
Walgreens' non-beauty, non-pharmacy offer is also "mediocre," according to Saunders, who noted that a sushi bar at its Denver store should be the kind of enticement offered more widely across the chain.
"This will become a much greater risk as mail order and online pharmacy fulfillment become more significant," Saunders warned. "The lack of a compelling store offer could also be a disadvantage if and when CVS adds more health services to its own stores. Walgreens needs to move onto the front foot in terms of retail in order to defend and grow other parts of its business."
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