How Much Help Does Walgreens Get From Its International Footprint?

On a GAAP basis, the company posted net income of $2 billion in the first quarter ($1.93 per share). Adjustments included a $0.77 per share gain on previously held equity interest and a $0.35 per share gain in the fair market value of warrants partially offset by various charges.

Now that the Walgreen acquisition of Boots Alliance is completed, the company has organized into three divisions: Retail Pharmacy USA, Retail Pharmacy International and Pharmaceutical Wholesale. U.S. division sales for the quarter totaled $21 billion, up 7.4%, and same-store sales rose 6.9% in the quarter. Pharmacy sales rose 10.1% in the quarter and the company reported that it now holds 19.3% of the U.S. retail prescription market. Walgreens operated 8,232 drugstores in its U.S. retail pharmacy division.

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International division sales totaled $2 billion and same-store sales on a constant currency basis rose 2.9%. The company operated 4,559 stores internationally.

The wholesale division posted second-quarter sales of $3.9 billion, essentially flat with the same period a year ago.

Walgreens offered full-year adjusted EPS guidance of $3.45 to $3.65. The estimate assumes that currency exchange rates for the year remain the same as they are currently. The consensus estimate called for EPS of $3.61. For the fiscal third quarter, analysts are looking for EPS of $0.95 on revenues of $29.76.

The company’s CEO said:

This quarter marked a solid start for our new company, and I remain as optimistic as ever about our long-term future. At the same time, we understand the work that is needed to proactively address headwinds such as reimbursement pressure and competition. … The first [key work] area is improving the performance of our businesses worldwide with an emphasis on operations. Second, we will be refreshing and reinvesting in the stores of our Retail Pharmacy USA division to improve the customer experience and expand retail margins. Third, we are restructuring our cost base, with a focus primarily in the USA, to create a more efficient cost model and become a more agile company.

With more than half as many stores as the U.S. division but only a 10th of the revenues, the company’s international division needs some serious attention. Yet two of three “key areas” for improvement are U.S.-focused. The company might want to re-evaluate where it directs more of its efforts.

Shares traded up about 0.8% in premarket trading Thursday to $88.35, near the top of the stock’s 52-week range of $57.75 to $88.81. Thomson Reuters had a consensus analyst price target of $82.47 before the results were announced.

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