Evaluating the performance of Retail Pharmacy USA division
Walgreens Boots Alliance’s (WBA) 1Q18 top-line growth was driven by strong performances from all three of its divisions. We’ll discuss the Retail Pharmacy USA division in this part of our series, and in the next part we’ll focus on the company’s international businesses.
The Retail Pharmacy USA division, which accounted for 73.2% of its 1Q18 sales, recorded 8.9% YoY growth in total sales. Pharmacy sales increased by an impressive 14% during the quarter, driven by higher prescription volume.
While the company was hit by a reduction in reimbursement rates and a fall in generics, its pharmacy sales got a boost from solid momentum in its mail services and central specialty pharmacy, operated under AllianceRx Walgreens Prime.
Comparable pharmacy sales rose 7.4% during the quarter. Prescriptions filled in comparable stores were up 8.9% YoY, driven primarily by volume growth from its previously announced strategic partnerships and Medicare Part D growth. In comparison, Rite Aid (RAD) recorded a 2.4% decline in the number of prescriptions filled in the same stores (adjusted to 30-day equivalents).
US Retail remains soft
Walgreens’ retail division, however, remained a laggard. Its same-store sales fell for the sixth straight quarter. Sales comps were down 0.9%, hurt by weak demand for personal care products and general merchandise category. Total retail sales decreased 2.8% during the quarter.
The recent softness in retail sales has raised doubts about Walgreens’s acquisition of 1,932 Rite Aid stores.
“From our perspective, it may take at least a handful of years before Walgreens is able to fully benefit from the acquisition,” said Morningstar analyst Vishnu Lekraj.
Margins come under pressure
Gross margins at the Retail Pharmacy USA business plunged 140 basis points to 24.9%. Margins were hit by lower reimbursement rates and higher sales of low-cost generic drugs.
Read about the company’s remaining segments in the next part of this series.