Earnings

Rite Aid Acquisition No Magic Pill For Walgreens’ Sales

Walgreens

In response to weak sales at Walgreens Boots Alliance Inc., following the retailer’s decision to add nearly 2,000 Rite Aid locations to its store base, a Morningstar analyst is questioning how long it will take for the acquisition to boost the company’s bottom line, Reuters reports.

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

Morningstar’s commentary comes after the pharmacy chain reported its sixth straight fall in retail same-store sales for the first quarter of fiscal 2018, along with a drop in gross margins for its U.S. operations. The news sent the retailer’s stock down 6.3 percent.

Walgreens’ results were impacted by weak demand for consumables and personal care products. Same-store sales for its outlets that sell over-the-counter drugs and general merchandise declined 0.9 percent.

Gross margins in its retail pharmacy USA business also took a hit, dropping to 24.9 percent from 26.3 percent one year before.

But the retailer had a bright spot in comparable pharmacy sales, which rose 7.4 percent. Still, increased sales of low-cost generic drugs — along with their lower reimbursement rates — hurt margins.

Overall, Walgreens saw a drop in net income, which fell to $821 million, or $0.81 per share, in the first quarter which ended Nov. 30, from $1.05 billion, or $0.97 per share, a year earlier. An impairment charge related to the retailer’s Chinese wholesale partner Guangzhou Pharmaceuticals also hurt profits.

News of the impairment charge came after Walgreens announced it would invest in another Chinese partner, China National Accord Medicines.

Thursday’s sales report comes a few months after Walgreens gained regulatory approval to purchase 1,932 stores and three distribution centers from Rite Aid for $4.38 billion. Following the purchase, Walgreens announced plans to close 600 stores.

A company official clarified the businesses marked for closure would likely be Rite Aid stores in close proximity to other Rite Aid or Walgreens locations.

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