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Walgreens Q1'20 prescription growth falters

Slower-than-expected U.S. prescription growth pulled down Walgreens Boots Alliance Inc.'s first-quarter results Jan. 8, pushing the pharmacy chain's shares down more than 5%.

Prescriptions filled in comparable stores rose 2.8% during the quarter ended Nov. 30, below the 4% that Walgreens had budgeted internally, Executive Vice President and CFO James Kehoe told analysts during a call Jan. 8.

"I think the only real surprise we had in the first quarter was on script volume," Kehoe said. "It did come in weaker than we expected."

Results for December, which Walgreens will report as part of its second-quarter results, are better, he added, declining to provide a specific growth figure.

For Walgreens to meet its 2020 guidance, prescription growth will need to be between 3.5% and 4.5% in the coming quarters, Kehoe said. December's prescription growth is "in excess" of that rate, he said.

Shares of Walgreens fell 5.6% to $55.95 in morning trading Jan. 8 after the retailer's adjusted EPS and net income for the quarter missed analysts' expectations. Retail sales in the U.S. and the U.K., which each declined by more than 2%, also weighed on the chain's results during the quarter.

Walgreens has turned to partnerships with players in the retail and healthcare space in recent years. Such partnerships have become even more important to the company's strategy since rival CVS Health Corp. bought health insurer Aetna Inc. in 2018.

Walgreens "nailed one of the first steps" in such a partnership with grocer The Kroger Co. when it said that the two companies would join forces on procurement in December 2019, Kehoe said Jan. 8. In the past year, Walgreens has piloted grocery order pickup for Kroger at some of its stores, and the two retailers sell a limited selection of each others' products.

"When you put together the two consumer sets, we serve together around 20 million customers a day between us," Walgreens Co-COO Alexander Gourlay said during the Jan. 8 call, adding that the partnership spans food, pharmaceuticals and beauty products. "We believe that's going to be a strong opportunity."

Executives did not mention private equity firm KKR & Co. Inc.'s reported interest in a deal to take Walgreens private.