Walgreens is missing out on sales opportunities in beauty, analyst says

Chances are, a lot of people opened gifts on Christmas morning that were purchased on the Walgreens e-commerce site.

The pharmacy retailer said it had a blockbuster Black Friday weekend, with sales up more than 45% year-over-year thanks to skincare brands like No7, fragrance items and electric toothbrushes.

Nonetheless, Walgreens Boots Alliance Inc. WBA, -0.95%  stock was down 7.5% for the week, closing down nearly 6% on Wednesday after the company reported a fiscal first-quarter profit miss and a 2.2% U.S. retail sales decline. Shares fell again on Thursday, closing down 2.1%.

Another bright spot, according to Walgreens, were U.S. retail same-store sales, which grew 0.8% on the strength of the health and wellness and beauty categories.

“It is mediocre growth which is well below the 4.1% growth the total beauty and wellness market posted over the same period,” said Neil Saunders, managing director at GlobalData Retail.

“In other words, Walgreens continues to lose market share and is completely failing to capitalize on consumer interest in beauty and wellness in a way that other players like Ulta, Sephora and Target are currently doing.”

With results challenged, Walgreens is looking outward for a bump.

Raymond James analysts note the long list of partnerships Walgreens has forged in a search for growth. Among them, a wellness partnership with weight-loss company Jenny Craig, a purchasing group with Kroger Co. KR, -0.23%  as well as Kroger Express, a concept shop that’s currently has 35 locations.

“With management continuing to investigate what feels like every route possible to spur growth, we prefer to remain on the sidelines absent evidence of organic growth and a challenging operating environment,” Raymond James wrote.

Analysts there rate Walgreens market perform.

“Our main concern about Walgreens is that it is being run in a technical way and without enough flair,” said GlobalData’s Saunders.

“All of the future initiatives appear to be about driving cost savings in the easiest way possible – such as creating a purchasing group with Kroger. There is nothing inherently wrong with this approach, but we would like to see it accompanied by a vision about what Walgreens can deliver for customers.”

These partnerships could ultimately show results, but JPMorgan says it will take time.

“The company has pursued a partnership strategy in an effort to drive store traffic and prescription volume and new avenues of growth, although we note that these are very early stage and are not expected to be a material contributor for several years,” analysts said.

JPMorgan rates Walgreens stock neutral with a $62 price target.

Walgreens stock has fallen more than 25% over the last year while the S&P 500 index SPX, -0.07%  has gained 26% for that period.

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