Consequently, the company also announced that it is launching a new cost management program to help to counteract margin pressures that it has been facing. WBA is targeting annual cost savings in excess of $1.0 bln by the end of the third year as it sees significant savings opportunities over a multi-year period.
Taking a look at the headline numbers, WBA generated Adjusted EPS of $1.46, beating analysts' estimates by $0.02 and growing by 14% year/year. This was driven by seasonal working capital investments and the Rite Aid Stores integration. However, adjusted operating income declined by 3.3% due to several factors. For instance, during the quarter, the company invested $30 mln in stores and labor, cutting operating income by 165 basis points. Additionally, performance from the company’s international retail pharmacy category was weaker than expected, particularly due to challenging market conditions in the U.K.
As for the top line, revenue increased by a healthy 11.4% on a constant currency basis (9.9% including FX impact). But excluding the addition of Rite Aid stores, sales went up a more modest 4.3%. WBA did comment that it is making good progress in its partnerships, including with Kroger (KR), FedEx (FDX), Humana (HUM), and, most recently, with life sciences company Verily. Its partnership with Verily, which focuses on treating chronic diseases, will enable WBA to collaborate with the company to develop new healthcare products while bringing Verily's products to a large patient population quickly.
Turing back to its quarterly results, the company’s U.S. Retail Pharmacy segment was the outperformer; sales jumped by 14.4% to $25.7 bln. Again, most of this growth was fueled by the addition of the Rite Aid stores while organic growth was 4.6%. Meanwhile, comparable pharmacy sales increased by 2.8% as it filled 289.8 mln prescriptions, up 11% year/year.
The clear laggard was the aforementioned international retail pharmacy business, which experienced a 3.6% decrease in sales to $2.9 bln. In the U.K., comparable pharmacy sales decreased 3.5% and comparable retail sales decreased 2.6%. Improved Boots U.K. market share performance was more than offset by a very weak retail environment.
Despite these difficult conditions, WBA did reaffirm its outlook for FY19, seeing 7-12% adjusted EPS growth for the year. However, looking to offset the softness in some of its markets, and cost pressures, WBA also announced a major restructuring plan alluded to above this morning. This program is multi-faceted, including divisional optimization initiatives, which have already begun in its Pharmaceutical Wholesale division, as well as in the company's retail businesses in Chile and Mexico. Furthermore, WBA has initiated smart spending and optimization programs with an initial focus on its Retail business in the U.S. and its Retail Pharmacy U.S. segment.
All in all, it wasn't a terrible quarterly report from WBA, and the company executed reasonably well, given the tough conditions. Going forward, the restructuring plan should help to streamline operations and make the company leaner and more efficient. As long as its markets don't significantly deteriorate from here, WBA should be in-line for improved earnings, operating income, and cash flow growth in the near future.