RAD Rite Aid Corp

By Paul Ziobro and Lisa Beilfuss 

Walgreens Boots Alliance Inc. executives warned of a long period of uncertainty in the U.K. following the country's vote to leave the European Union.

The U.K., where Walgreens owns the Boots drugstore chain, is the company's second-largest market by sales after the U.S. Aside from the effects of the British pound's plunge, the company expects tumult from the Brexit vote will give consumers pause before spending.

"The situation is very volatile at this time," said Chief Executive Stefano Pessina on Wednesday. "The period of uncertainty will be quite long, whatever happens."

Still, the company said it believes the Boots chain will be able to overcome the jitters, given its retail business has outperformed other chains offering more-discretionary wares during past economic slumps. One reason: Despite uncertainty, women still spend money on makeup.

"People still buy into beauty, even in tough times," said Alex Gourlay, the company's co-chief operating officer, who oversees all retail operations. The company has about 2,500 stores in the U.K., and about 9% of total sales in its last fiscal year came from the country.

On Wednesday, Walgreens Boots posted a slight increase in overall sales for its fiscal third quarter ended May 31, as the company filled more prescriptions at its U.S. business. The sale of drugs far outperformed sales growth in the front of the company's drugstores, where Walgreens is focusing on more profitable sales like beauty products and gifts rather than pushing discounts on sodas and snacks.

Walgreens Boots is currently overhauling its business following the 2014 merger of the U.S. drugstore chain Walgreen with the European retailer and drug wholesalers Alliance Boots. With reimbursement rates for prescription drugs under pressure, the company is cutting costs and forging new ties with drugmakers and health insurers.

The company is also in the midst of buying smaller drugstore chain Rite Aid Corp. for about $9.4 billion as it takes part in a rapidly consolidating U.S. health-care sector. Mr. Pessina expressed confidence Wednesday that the deal, which is under review by U.S. antitrust regulators, would close as planned before the end of the year.

"We are very confident that this deal will go through," Mr. Pessina said. "Our lawyers are telling us that we don't have any negative signal" from U.S. regulators.

In its latest quarter, the Deerfield, Ill., company said that overall sales at stores open at least a year rose 3.9%, better than the 3.7% analysts expected and up from the 2.2% pace -- the lowest in three years -- logged in the second quarter.

Sales in Walgreens's pharmacy business jumped 6% on a comparable basis, nearly double the prior quarter's rate, as it filled 4.5% more prescriptions thanks to rising volume from prescription-drug program Medicare Part D. At the front end, where the company sells items from snacks to greeting cards to beauty products, sales inched up 0.1% after declining 0.3% in the second quarter. The company attributed the increase to strong sales of health and beauty items and from its photo business.

Walgreens reported a third-quarter profit of $1.1 billion, compared with $1.3 billion a year earlier. Excluding merger-related items and a change in the fair value of warrants exercised to buy a stake in AmerisourceBergen, among other things, the company said earnings rose to $1.18 a share from $1.02.

Revenue for the quarter grew 2.4% to $29.5 billion from a year earlier.

The company raised the low end of its earnings per-share forecast for the year by a dime, now expecting to report $4.45 to $4.55 in adjusted earnings a share. Walgreens said the guidance assumes no impact from the pending Rite Aid deal.

Write to Paul Ziobro at Paul.Ziobro@wsj.com and Lisa Beilfuss at lisa.beilfuss@wsj.com

(END) Dow Jones Newswires

July 07, 2016 02:49 ET (06:49 GMT)

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