Retail giant Wal-Mart Stores Inc. (NYSE:WMT) has been looking to strengthen its health-related business as well as cut costs in its pharmacy operations.
As a part of this initiative, the company has inked a sourcing agreement for generic pharmaceuticals and an expanded long-term distribution agreement with healthcare service company McKesson Corporation (NYSE:MCK) . Under this, the companies will collaborate on sourcing generic pharmaceuticals for their U.S. operations, adding scale and value to both the companies.
Wal-Mart and McKesson have been working together for years in the pharmaceutical category and this latest sourcing agreement strengthens the ties between the companies.
Wal-Mart will benefit from McKesson’s demonstrated strength and expertise in the global pharmaceutical industry. Meanwhile, McKesson will benefit from Wal-Mart’s brand name as well as its commitment to deliver health and wellness services at a low price.
The new agreement is expected to provide Wal-Mart the opportunity to counter the headwinds it has been facing. The company has been facing intense competition on all fronts, ranging from dollar stores to traditional grocery store chains and online business. Its international operations are also under pressure with a stronger dollar affecting sales. At the same time, Wal-Mart projects slower growth in small format Express stores due to price competition from local grocers in some markets.
The Bentonville, AR-based company is facing severe challenges and showing signs of weakness. Wal-Mart expects to incur huge e-commerce expenses. In an effort to compete with the biggest online retailer Amazon.com (NASDAQ:AMZN) and to improve customer service, Wal-Mart is aggressively investing in its e-commerce business. Wal-Mart's focus on e-commerce will in turn lower profit margin, considering shipping costs and price competition.
Wal-Mart is slated to report first-quarter fiscal 2017 results, before the opening bell on May 19. Last quarter, this retail giant posted a positive earnings surprise of 2.05%.
Wal-Mart carries a Zacks Rank #3 (Hold). A better ranked stock in the retail sector is The Kroger Company (NYSE:KR) with a Zacks Rank #2 (Buy).
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