January 4, 2018 / 12:26 PM / a year ago

Walgreens' weak retail sales, gross margins hit shares

(Reuters) - Walgreens Boots Alliance Inc (WBA.O) on Thursday reported its sixth straight fall in retail same-store sales in the first quarter of fiscal 2018 along with a drop in gross margins in its U.S. business, sending its shares down as much as 6.3 percent.

FILE PHOTO: The Walgreens logo is seen outside the store in Times Square in New York, U.S., July 5, 2016. REUTERS/Shannon Stapleton

The biggest U.S. drugstore chain’s stock fell to $70.73, recording its biggest intraday percentage loss in more than two years.

Same-store sales in its front-end outlets through which the company sells over-the-counter drugs and general merchandise fell 0.9 percent, hurt by weak demand for consumables and personal care products.

Comparable pharmacy sales rose 7.4 percent, but higher sales of low-cost generic drugs and their lower reimbursement rates hit margins.

Gross margins in its Retail Pharmacy USA business, which includes front-end stores and pharmacies, fell to 24.9 percent from 26.3 percent, a year earlier.

The weakness in sales at its retail stores has raised doubts about its degree of success from its move to add 1,932 Rite Aid stores to its store base within the next three years.

“From our perspective, it may take at least a handful of years before Walgreens is able to fully benefit from the acquisition,” Morningstar analyst Vishnu Lekraj wrote in a note.

Walgreens, unlike its rival CVS Health Corp (CVS.N), did not detail the impact of the recent tax overhaul on its business.

On Thursday, CVS shares rose as much as 4 percent after it said cash flows would get a $1.2 billion boost from the new U.S. tax code that would see corporate tax rates slashed to 21 percent from 35 percent.


Net income attributable to Walgreens fell to $821 million, or 81 cents per share, in the first quarter ended Nov.30, from $1.05 billion, or 97 cents per share, a year earlier.

An impairment charge related to its investment in Chinese wholesale partner Guangzhou Pharmaceuticals [GZPHA.UL] hurt profits, the company said.

On an adjusted basis, the drugstore chain earned $1.28 per share, beating the analysts’ average estimate of $1.26 per share.

Net sales rose 7.9 pct to $30.74 billion.

Analysts on average were expecting a revenue of $30.35 billion, according to Thomson Reuters I/B/E/S.

The drugstore chain also lifted the lower end of its full-year adjusted profit forecast by 5 cents to a range of $5.45-$5.70 per share. Analysts on average were expecting $5.56 per share.

Reporting by Siddharth Cavale and Ankit Ajmera in Bengaluru; Editing by Arun Koyyur

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