Rite Aid acquisition still expected to close early this year

DEERFIELD, Ill. — Walgreens Boots Alliance (WBA) edged past Wall Street’s adjusted earnings per share forecast in its fiscal 2017 first quarter despite declined sales and net income.

WBA also reported Thursday that it’s still working to finalize its $17 billion deal to acquire Rite Aid Corp. and continues to expect to complete the transaction in early 2017.

For the first quarter ended Nov. 30, WBA’s sales dipped 1.8% to $28.5 billion from $29.03 billion a year earlier. Revenue for the quarter, however, was up 1.1% on a constant currency basis, the company noted.

Net earnings attributable to WBA, on a GAAP basis, fell to $1.05 billion, or 97 cents per diluted share, in the first quarter from $1.11 billion, or $1.01 per diluted share, a year ago. The company attributed the decrease mainly to a lower impact of UK tax rate reductions.

WBA said adjusted earnings in the quarter came in at $1.2 billion, or $1.10 per diluted share, compared with $1.13 billion, or $1.01 per diluted share, in the prior-year period.

Analysts, on average, had projected adjusted EPS of $1.09, with estimates ranging from a low of $1.01 to a high of $1.15, according to Thomson Reuters.

“Overall, we are pleased with the progress this quarter, with results in line with our expectations. We continue to anticipate that growth in the second half of fiscal 2017 will reflect the new strategic pharmacy partnerships we announced last year,” executive vice chairman and chief executive officer Stefano Pessina said in a statement, referring to WBA’s agreements with Prime Therapeutics, OptumRx and Express Scripts-TRICARE. “As a result, we have raised the lower end of our fiscal year guidance by 5 cents per share. In addition, we continue to work toward closing the pending acquisition of Rite Aid Corp. in the early part of this calendar year.”

In WBA’s Retail Pharmacy USA division, which includes Walgreens and Duane Reade, first-quarter sales rose 1.4% to $20.66 billion from $20.37 billion a year earlier. Same-store sales were up 1.1% overall.

Inside a Walgreens “Beauty Differentiation” store.

Front-end sales dipped 0.9% year over year, which WBA said reflects the impact of the closing of certain e-commerce operations. On a comparable-store basis, front-end sales declined 0.5%, including decreases in consumables, general merchandise and personal care category, partially offset by gains in the health and wellness and beauty sales. The company noted that since the end of the first quarter, it has completed the first phase of the rollout of its “Beauty Differentiation” beauty format in more than 1,800 stores.

Pharmacy sales, which represented 69.1% of the USA division’s sales in the first quarter, climbed 2.5% overall and 2% on a comp-store basis. WBA said comparable pharmacy sales growth stemmed from increased pharmacy volume and brand inflation, partially offset by reimbursement pressure and the impact of new generic drugs.

Dispensed prescriptions (including immunizations) in the quarter totaled 237.6 million, adjusted to 30-day equivalents, up 3% from a year ago. Prescription count on a same-store basis was up 3.4%, which WBA attributed primarily to continued growth in Medicare Part D volume.

The company said the USA division’s retail prescription market share in the first quarter, on a 30-day adjusted basis, rose about 40 basis points year over year to 19.5%, based on data from IMS Health.

WBA reported sales of $2.96 billion, down 14.4% year over year, at its Retail Pharmacy International division and revenue of $5.42 billion, down 6.5%, at its Pharmaceutical Wholesale division for the first quarter.

Looking ahead, WBA raised the lower end of its fiscal 2017 guidance by 5 cents per share and now projects adjusted EPS (diluted) of $4.90 to $5.20. The company said the guidance includes EPS accretion of 5 cents to 12 cents from Rite Aid and reflects its expectations for the timing of the transaction’s completion and store divestitures. WBA added that it also continues to expect synergies of more than $1 billion from the acquisition, to be fully realized within three to four years after the merger closes.

Last month, Fred’s Inc. agreed to buy 865 Rite Aid stores in a $950 million deal with WBA and Rite Aid, an agreement expected to expedite Federal Trade Commission clearance of the Walgreens-Rite Aid merger. The divestiture transaction is subject to FTC approval, the approval and completion of WBA’s acquisition of Rite Aid and other customary closing conditions.