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How Was Walgreens’s Retail Pharmacy Business Performance in the US?

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Jul. 11 2016, Updated 8:07 a.m. ET

Evaluating WBA’s Retail Pharmacy USA business

Retail Pharmacy USA division, under which Walgreens Boots Alliance operates its pharmacy-led health and beauty retail businesses in the US, is the company’s largest business segment.

Walgreens (WBA) operates close to 8,200 pharmacies in the US. It is closely followed by CVS Health (CVS), which operates slightly fewer than 8,000 pharmacies. Walgreens’s acquisition target, Rite Aid (RAD), has more than 4,500 pharmacy stores, whereas Walmart (WMT) operates close to 4,000 stores in the US.

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Performance in 3Q16

This segment recorded a 3.7% YoY increase in sales in fiscal 3Q16. Total sales stood at $21.2 million, representing 72% of the company’s total sales during the quarter. Comparable store sales for the segment rose by 3.9% compared to fiscal 3Q15.

Sales growth in the Retail Pharmacy USA division were driven by a 5.8% jump in the Pharmacy segment sales. Partially offsetting this sales growth was a decline in revenue resulting from the sale of a controlling interest in the company’s infusion business in April 2015.

Comparable sales for the Pharmacy segment inched up by 6% as prescriptions filled in comparable stores increased by 4.5% due to higher Medicare Part D volume.

The Retail division, which generates revenue from the sale of a variety of items ranging from beauty products to greeting cards, reported a modest improvement of 0.1% in total sales. The company’s management noted that it is looking to roll out more than 1,800 stores with differentiated beauty offerings by the end of 2016.

A look at margins

Higher pharmacy volume and procurement efficiencies resulted in a 1.8% growth in gross profit. The company’s gross margin, however, fell by 50 basis points to 26.9% as the pharmacy margin improvement was partially offset by lower retail product margin.

Adjusted operating profit increased 4.1% over fiscal 3Q15 to $1.4 billion as the company benefited from its cost transformation program.

ETF investors seeking to add exposure to WBA can consider the iShares US Consumer Services ETF (IYC). IYC invests 2.5% of its portfolio in WBA.

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