Walgreens’s Currency Headwinds for Its International Businesses



Currency headwinds impact WBA again

In the last couple of quarters, Walgreens Boots Alliance’s (WBA) fiscal 1Q17 top line was negatively affected by currency headwinds. The top line fell 1.8% YoY (year-over-year) in fiscal 1Q17.

WBA’s Retail Pharmacy International and Pharmaceutical Wholesale divisions, which account for ~30.0% of the company’s top line, bore the brunt of unfavorable exchange rates. The company acquired these two businesses as part of the Alliance Boots transactions in 2015.

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Retail Pharmacy International

WBA’s Retail Pharmacy International segment saw sales fall 14.4% YoY to $3.0 billion, primarily due to unfavorable exchange rates. Had it not been for currency headwinds, the segment would have risen 0.50% in total sales.

Comparable store sales fell 0.10% since the 0.20% rise in retail comps (comparables) was washed away by a 0.50% fall in pharmacy comps. Pharmacy comps were negatively impacted by the reduction in government pharmacy funding in the United Kingdom.

Currency fluctuations also impacted the segment’s gross profit, which fell 17.4% YoY during the quarter. On a constant currency basis, gross profit fell 2.7%.

Adjusted operating income fell a whopping 32.4% YoY to $213.0 million, since the company recorded a 1.1% YoY rise in its SG&A (selling, general, and administrative) rate.

Pharmaceutical Wholesale

WBA’s Pharmaceutical Wholesale sales fell 6.5% to $5.4 billion. On a constant currency basis, there was a 0.60% YoY rise in total sales. Sales comps stood strong at 4.7%, ahead of the company’s estimates.

The adjusted operating margin for the segment was 3.1%, excluding AmerisourceBergen (ABC). The segment rose 30 basis points in constant currency from the same quarter last year. Adjusted operating income rose 45.2% YoY on a constant currency basis, primarily due to equity earnings from ABC. WBA has a ~24.0% stake in ABC. Excluding ABC, operating income rose 10.2%.

If you’re looking for exposure to WBA, you can consider the SPDR S&P Retail ETF (XRT). XRT invests 1.6% of its portfolio in WBA and 2.1% in CVS Health (CVS) and Rite Aid (RAD).


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