Walgreens Cuts Earnings Guidance After a Challenging Second Quarter -- Update

By Aisha Al-Muslim

Walgreens Boots Alliance Inc. cut its earnings expectations for the fiscal year after the drugstore chain said it faced its most difficult quarter since the merger of Alliance Boots and Walgreens.

In the most recent quarter, the Deerfield, Ill.-based company said its profit fell to $1.16 billion, or $1.24 a share, from $1.35 billion, or $1.36 a share, a year earlier. Adjusted earnings came in at $1.64 a share, lower than the $1.72 a share that analysts polled by Refinitiv expected.

"The market challenges and macro trends we have been discussing for some time accelerated," Walgreens Chief Executive Stefano Pessina said Tuesday. "During the quarter, we saw significant reimbursement pressure, compounded by lower generic deflation, as well as continued consumer market challenges in the U.S. and U.K.."

Walgreens shares fell about 8% to $58.40 in premarket trading. Shares are up about 0.6% over the past year.

For fiscal 2019, Walgreens now expects adjusted earnings per share at constant currency rates to be roughly flat, lower than its previous guidance for 7% to 12% growth.

For the second quarter, Walgreens said sales rose 4.6% to $34.53 billion as the company continues integrating Rite Aid stores. Analysts, according to Refinitiv, expected Walgreens to report sales of $34.56 billion.

In the quarter, U.S. retail pharmacy sales rose 7.3% to $26.3 billion, due in large part to higher prescription volumes from the acquisition of Rite Aid stores.

Same-store pharmacy sales increased 1.9%, while comparable retail sales were down 3.8%. Comparable retail sales were down primarily due to a weak cough, cold and flu season, the company said. Also playing a role in the decline were a drop in seasonable merchandise sales and a shift away from sales of products like tobacco.

"We are going to be more aggressive in our response to these rapidly shifting trends," Mr. Pessina said.

The company has been testing tobacco-free stores in the U.S. due to pressure from federal regulators, activists and some investors.

In early March, Walgreens shares fell for several days after the Food and Drug Administration in February called the company out for being a top violator among pharmacies illegally selling tobacco products to minors.

In response, Walgreens said it has a zero-tolerance policy on selling tobacco to minors and any employee found to be in violation is subject to termination.

In December, Walgreens said it was taking steps over three years to eliminate more than $1 billion in annual costs through a new plan.

After the disappointing quarter, Walgreens increased its annual cost-savings target to more than $1.5 billion by fiscal 2022.

The company expects to improve its performance in fiscal 2020, resulting in mid-to-high single-digit growth in adjusted earnings per share in the following years, it said.

The company's initiatives will result in significant restructuring and other special charges as they are implemented, the company said. The company recognized pretax charges of $179 million for the six months ended Feb. 28, related primarily to the pharmaceutical wholesale and retail pharmacy international divisions.

The drugstore chain has been shrinking its retail footprint as it searches for other avenues of growth to ward off competition from CVS Health Corp. and Amazon.com Inc.

Walgreens has struck about a dozen partnership deals in the past couple of years in a bid to increase revenue by increasing pharmacy orders and getting customers to make other in-store purchases.

Write to Aisha Al-Muslim at aisha.al-muslim@wsj.com

(END) Dow Jones Newswires

April 02, 2019 08:49 ET (12:49 GMT)

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