Walgreens Warns of Uncertainty in the U.K.-- 2nd Update
July 06 2016 - 11:45AM
Dow Jones News
By Paul Ziobro and Lisa Beilfuss
Walgreens Boots Alliance Inc. executives warned of a long period
of uncertainty in the U.K. following the country's vote to leave
the European Union.
The U.K., where Walgreens owns the Boots drugstore chain, is the
company's second-largest market by sales after the U.S. Aside from
the effects of the British pound's plunge, the company expects
tumult from the Brexit vote will give consumers pause before
spending.
"The situation is very volatile at this time" Chief Executive
Stefano Pessina said Wednesday. "The period of uncertainty will be
quite long, whatever happens."
Still, the company believes the Boots chain will be able to
overcome the jitters, given its retail business has outperformed
other, more discretionary chains during past economic slumps. One
reason: Despite uncertainty, women still spend money on makeup.
"People still buy into beauty, even in tough times," said Alex
Gourlay, the company's co-chief operating officer who oversees all
retail operations. The company has about 2,500 stores in the U.K.
and about 9% of total sales last fiscal year came from the
country.
The comments came as Walgreens Boots posted a slight increase in
overall sales the quarter ended May 31, as the company filled more
prescriptions in its U.S. business. The sale of drugs far
outperformed meager sales growth in the front of the company's
drugstores, where Walgreens is focusing on more profitable sales
like beauty products and gifts rather than pushing discounts on
sodas and snacks.
In recent trading, Walgreens Boots shares fell 2.9% to $81.10.
The shares have slipped 4.8% on the year.
Walgreens Boots is in the midst of an overhaul following the
2014 merger of the U.S. drugstore chain Walgreen with the European
retailer and drug wholesalers Alliance Boots. With reimbursement
rates for prescription drugs under pressure, the company is cutting
costs and forging new ties with drug manufacturers and health
insurers.
It is also in the midst of buying the smaller drugstore chain
Rite Aid Corp. for $9.4 billion as it takes part in a rapidly
consolidating U.S. health-care sector. Mr. Pessina expressed
confidence Wednesday that the deal, which is undergoing a review by
U.S. antitrust regulators, will close as planned before the end of
the year.
"We are very confident that this deal will go through," Mr.
Pessina said. "Our lawyers are telling us that we don't have any
negative signal" from federal regulators. Rite Aid shares rose 1.8%
to $7.43 in early trading, but are still well below the proposed
$9-a-share purchase price.
In its latest quarter, the Deerfield, Ill., company said overall
sales at stores open at least a year rose 3.9%, better than the
3.7% analysts expected and up from the 2.2% pace -- the lowest in
three years -- logged in the second quarter.
Sales in Walgreens' pharmacy business jumped 6% on a comparable
basis, nearly double the prior quarter's rate, as it filled 4.5%
more prescriptions thanks to rising Medicare Part D volume. At the
front end, where the company sells items from snacks to greeting
cards to beauty products, sales inched up 0.1% after declining 0.3%
a quarter earlier. The company attributed the gain to strong sales
of health and beauty items and from its photo business.
Overall for its fiscal third quarter, Walgreens reported a
profit of $1.10 billion, down from $1.30 billion a year earlier.
Excluding merger-related items and a change in the fair value of
warrants exercised to buy a stake in AmerisourceBergen, among other
things, the company said per-share profit rose to $1.18 from
$1.02.
Revenue edged 2.4% higher to $29.50 billion.
The company lifted the low end of its per-share profit forecast
for the year by a dime, now expecting to report $4.45 to $4.55 in
adjusted earnings per share. Walgreens said the guidance assumes no
impact from the pending Rite Aid deal.
Write to Paul Ziobro at Paul.Ziobro@wsj.com and Lisa Beilfuss at
lisa.beilfuss@wsj.com
(END) Dow Jones Newswires
July 06, 2016 11:30 ET (15:30 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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