Walgreens Boots Alliance’s acquisition of Rite Aid is now not expected to close until January.
The deal was previously expected to close in October, but both sides agreed to push back the closing. Walgreens expects that between 500 and 1,000 stores will have to be divested and that it will be able to enter into sale agreements for the locations by the end of the year, pending approval from the Federal Trade Commission, executives said on the company’s earnings call Thursday morning.
The deal news came at the same time as reported full-year and fiscal fourth quarter numbers.
Walgreens reported $1 billion in net earnings in the fourth quarter, up from $26 million in the prior year period. Net earnings per share were 95 cents, up from 2 cents year-over-year. Sales for the quarter were up 0.4 percent to $28.6 billion.
The increases reflect fluctuations in “the quarterly fair value adjustments” in Walgreens’ agreements with AmerisourceBergen Corp., a pharmaceutical wholesaler.
For the full year, earnings dipped 1.1 percent to $4.2 billion, with earnings per share down 4.5 percent to $3.82. Sales for the fiscal year gained 13.4 percent, to $117.4 billion, largely due to the inclusion of the Alliance Boots results for the year. The Alliance Boots and Walgreens merger closed in December 2014.
Walgreens issued EPS guidance of $4.85 to $5.20 for fiscal 2017, which assumes accretion of 5 to 12 cents from the Rite Aid deal.
“It is taking more [time] than we expected, but I have to tell you that as you have seen from our presentation and from the fact that we have included some part of Rite Aid potential profit in our guidance, that from this…you can really understand that we are confident — as confident as we were before — about this deal,” said Walgreens chief executive officer Stefano Pessina. “Nothing has changed, we have just a delay in the execution of the deal.” Published reports have been circulating that Kroger supermarket has been looking into buying 650 of the Rite Aid stores that Walgreens needs to shed while seeking Federal Trade Commission approval of the acquisition.
Sales for the retail pharmacy unit were $20.7 billion for the quarter, up 4 percent year-over-year, with pharmacy sales accounting for 69 percent of that. Retail sales, also included in that division, decreased 0.5 percent, due to lower sales of back-to-school and other seasonal categories, but offset by higher sales of health and beauty.
“We took action to proactively clear out all legacy stock as we move to the next phase of our retail transformation program,” said Walgreens executive vice president and chief financial officer George Fairweather. “The first phase of our new beauty offering reaching more than 1,600 stores across the U.S. by the end of the fiscal year…in this phase, we are highlighting two of our best-known brands, No7 and Soap & Glory, alongside existing national brands.”
“The second element is the store environment,” Fairweather continued. “Our stores’ beauty areas are being transformed to provide a welcoming and colorful environment, with improved signage and lighting and a…range chosen to suit all types of customers, regardless of age or background. The third element of the new Walgreens beauty offer is the customer experience. This involved training and deploying specialist beauty consultants to offer high-quality advice to our customers. The program has drawn on our experience internationally, most directly from Boots in the U.K., but has been tailored specifically for the U.S. market based on customer engagement and research. This is the first phase of a multiphase, multiyear strategy to differentiate Walgreens’ beauty offering.”
Before the Walgreens Boots merger, Boots bought Soap & Glory and repositioned the brand, shifting distribution out of Sephora and expanding at Ulta. Walgreens also owns Liz Earle, which it bought from Avon in July 2015.