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Walgreens fourth quarter earnings top forecast

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DEERFIELD, Ill. — Walgreens Boots Alliance (WBA) on Thursday projected single-digit profit growth in fiscal 2021 after reporting better-than-expected fourth-quarter earnings, helped by higher sales at U.S. stores.

Stefano Pessina

Stefano Pessina

Sales in U.S. stores in the quarter ended August 31 advanced 3.6%  to $27.0 billion, with same-store sales rising by the same amount.

WBA said it anticipates strong adjusted profit growth in the second half of the new fiscal year, as the effects of the COVID-19 pandemic diminish, and its recovery take hold.

“I am pleased to report results that came in at the high end of our expectations as we continue to adapt and transform our business model to changing customer needs,” said executive vice chairman and CEO Stefano Pessina. “Despite uncertainty amid the global COVID-19 pandemic, we are seeing gradual improvement in key U.S. and UK markets and continued strong performance in our wholesale business. I’m also encouraged by the accelerating growth in our e-commerce platforms. Now, more than ever, our pharmacy-centered business is at the heart of community healthcare and we are expanding on that role for the future. I continue to be inspired by the tireless efforts of our teams as they support and care for our customers, patients and communities, while accelerating progress on our clear set of strategic priorities. Looking ahead, we are projecting adjusted EPS growth in fiscal 2021, as reflected in our new guidance.”

WBA’s fourth quarter adjusted earnings per share were $1.02, down 27.9% on a constant currency basis, but above analysts’ forecast of 96 cents per share.

Fourth quarter net earnings decreased 44.9% to $373 million compared with the same quarter a year ago and net earnings per share decreased 42.8% to $0.43. Adjusted net earnings decreased 30.9 percent to $887 million, down 30.6% on a constant currency basis

The decreases in both net earnings and adjusted net earnings were primarily due to an estimated adverse COVID-19 impact of $0.46, lower U.S. pharmacy gross profit and year-on-year bonus changes, partially offset by Transformational Cost Management Program savings.

Overall sales in the quarter were $34.7 billion, an increase of 2.3% on both a reported and constant currency basis.

Operating income was $650 million, a decrease of 26.0%. Adjusted operating income was $1.1 billion, a decrease of 27.7%, and a decrease of 27.4% on a constant currency basis. The company estimates adverse COVID-19 impact of approximately $520 million, or 34 percentage points of growth.

Net cash provided by operating activities was $2.1 billion, a decrease of $292. Free cash flow was $1.7 billion, a decrease of $248 million.

Fiscal 2020 net earnings decreased 88.5% to $456 million, while net earnings per share decreased 88.0% to $0.52, compared with the prior year, primarily due to third quarter non-cash impairment charges and costs related to the Transformational Cost Management Program.

Excluding these items, adjusted net earnings in fiscal 2020 decreased 24.5% to $4.2 billion, down 24.3 percent on a constant currency basis, compared with the prior year. Adjusted earnings per share decreased 20.8%t to $4.74, down 20.6% on a constant currency basis, primarily due to estimated adverse COVID-19 impact of approximately $1.06, lower U.S. pharmacy gross profit and year-on-year bonus changes, partially offset by Transformational Cost Management Program savings.

Sales increased 2.0% to $139.5 billion in fiscal 2020. On a constant currency basis, sales increased 2.5%.

Operating income in fiscal 2020 was $1.3 billion, a decrease of 73.7% from the prior year. Adjusted operating income was $5.2 billion, a decrease of 24.9 percent, and a decrease of 24.8% on a constant currency basis. The company estimates adverse COVID-19 impact of approximately $1.2 billion.

Net cash provided by operating activities was $5.5 billion in fiscal 2020, a decrease of $109 million from fiscal 2019. Free cash flow was $4.1 billion, an increase of $219 million.

The company introduced fiscal 2021 guidance of low single-digit growth in adjusted earnings per share at constant currency rates. While the company anticipates a gradual reduction in COVID-19 impacts, the first half results will continue to be negatively impacted when compared with the pre-COVID-19 first half of fiscal 2020. However, for the second half, the company anticipates strong adjusted EPS growth, as these effects subside and recovery plans take hold in key markets.

Significant investments in fiscal 2021 are expected to accelerate the company’s customer-centric approach, with specific focus on transforming omnichannel capabilities and offerings across retail and healthcare. These investments are expected to contribute to the second-half growth profile.

While this guidance anticipates a continued gradual reduction in COVID-19 impacts, the evolution of the pandemic remains uncertain. COVID-19 could present both incremental risks as well as opportunities for the company’s business.

Selected highlights of the company’s recent progress on strategic initiatives include the following:

  • Boots.com sales rose 155 percent and Walgreens.com sales rose 39 percent in the fourth quarter.
  • Walgreens has completed more than 1 million COVID-19 tests at more than 440 sites in 49 states and has increased testing capacity to 500,000 per month. More than 70 percent of testing sites are located in underserved areas. Results are generally provided within 24-72 hours. Walgreens also launched a COVID-19 testing program for businesses.
  • GuoDa, the Chinese retail pharmacy chain in which WBA has a minority investment, expanded to more than 7,500 pharmacies, nearly double the count when the WBA-GuoDa relationship began in 2018.
  • Mass personalization boosted Walgreens retail sales by 140 basis points in the fourth quarter.
  •  Walgreens and DoorDash announced an on-demand delivery collaboration
  • Customer response to Walgreens pick-up options has been strong, with sales from online orders collected at drive-thru windows and curbside up more than two fold from the third quarter.
  • The Transformational Cost Management Program remains on track to deliver in excess of $2 billion in annual cost savings by fiscal 2022.
  • The pace of technology transformation accelerated, with more than 3,500 Walgreens stores converted to retail SAP as of the end of the fourth quarter.
  • As the company evolves its business model, the focus is on the following key strategic initiatives:
Accelerating the Boots UK turn-around:
• Advancing omnichannel capabilities, including launching an enhanced customer loyalty program, myWalgreens, to more than 100 million consumers and expanding convenient options for pick-up in as little as 30 minutes
• Leveraging investment in VillageMD, opening 500 to 700 full-service doctor offices over the next five years, with initial phase of openings planned for fiscal 2021
• Continuing implementation of the Transformational Cost Management Program
• Expanding COVID-19 testing for businesses and preparing capability for COVID-19 vaccinations

In U.S. stores prescriptions filled in the fourth quarter increased 1.6% Ccompared with the same quarter a year earlier. In comparable stores, prescriptions filled increased 3.6%, an improvement of 3.2 percentage points compared with the third quarter. The number of prescriptions filled was 287.6 million, including immunizations, adjusted to 30-day equivalents. Pharmacy sales, which accounted for 75.6% of the division’s sales in the quarter, increased 4.2 percent. Comparable pharmacy sales increased 3.2%.

The division’s retail prescription market share on a 30-day adjusted basis in the fourth quarter decreased approximately 30 basis points to 20.7%, as reported by IQVIA. This result was mostly due to store closures. Retail prescription market share in fiscal 2020 declined by 40 basis points to 20.9 percent, compared with 21.3% in fiscal 2019.

Front-end sales increased 1.5 percent in the fourth quarter, including the impact of store optimization programs.

Comparable retail sales increased 4.7%, boosted by 15 percent growth in the health and wellness category and 8% growth in the personal care category. This was partly offset by a 3 percent decrease in the beauty category. Results were boosted by increased demand for PPE and by the performance of the mass personalization initiative. Walgreens.com sales grew 39 percent in the quarter.

Gross profit decreased 3.1 percent compared with the same quarter a year ago, reflecting pharmacy reimbursement pressure, lower retail margin due to COVID-19 mix impact and higher retail comprehensive loss. Adjusted gross profit decreased 4.5%.

SG&A decreased by 2.7%, reflecting store optimization and acquisition related costs in the year-ago quarter. Adjusted SG&A decreased by 0.1% as savings from the Transformational Cost Management Program offset COVID-19 related costs, year-on-year bonus changes, inflation and investments.

Operating income in the fourth quarter decreased 5.8% to $659 million. Adjusted operating income in the fourth quarter decreased 22.2 percent from the year-ago quarter to $884 million. Operating income and adjusted operating income included an adverse impact of approximately $200 million due to COVID-19.

Retail Pharmacy International had fourth quarter sales of $2.3 billion, a decrease of 14.9% from the year-ago quarter, including a favorable currency impact of 0.5 percent. Sales decreased 15.4% on a constant currency basis, mainly due to a 16.7% decrease in Boots UK sales.

Boots UK comparable retail sales decreased 29.2 percent on a constant currency basis as footfall in stores continued to be significantly reduced due to COVID-19, particularly in major high street, train station and airport locations. Footfall did, however, improve steadily in the fourth quarter compared with the third quarter.

Boots UK market share was lower in all categories except beauty, as the pandemic continued to impact heavily on buying habits and consumers temporarily shifted purchasing to one-stop grocery shopping. Boots.com sales growth accelerated to 155% compared with the year-ago quarter, partially offsetting the reduced footfall.

Comparable pharmacy sales in Boots UK increased 0.4 percent on a constant currency basis, reflecting favorable timing on National Health Service (NHS) reimbursement, which mitigated the impact of lower prescription volume and reduced demand for pharmacy services during the pandemic.

Gross profit decreased 24.7% compared with the same quarter a year ago, including a favorable currency impact of 0.7 percent. Adjusted gross profit decreased 25.7 percent on a constant currency basis, reflecting lower UK retail sales, higher fulfillment costs, marketing investments to drive customer traffic and lower fixed supplier contributions.

SG&A in the quarter decreased 8.7% from the year-ago quarter to $964 million, including an adverse currency impact of 0.9%. On a constant currency basis, adjusted SG&A decreased by 9.7 percent. The decreases in SG&A and adjusted SG&A both reflect short-term cost mitigation initiatives and savings from the Transformational Cost Management Program.

Operating income in the fourth quarter decreased $181 million from the year-ago quarter to an operating loss of $132 million, primarily as a result of retail sales in the UK. Adjusted operating income decreased $197 million to an adjusted operating loss of $3 million. On a constant currency basis, adjusted operating income decreased $196 million. The estimated adverse COVID-19 impact on both operating income and adjusted operating income was approximately $300 million.

The Pharmaceutical Wholesale division had fourth quarter sales of $6.0 billion, an increase of 4.3%. On a constant currency basis, sales increased 4.3%, led by emerging markets, Germany and France.

Operating income in the fourth quarter was $124 million, which included $57 million from the company’s equity earnings in AmerisourceBergen, compared with operating income of $129 million in the year-ago quarter, which included $59 million from the company’s equity earnings in AmerisourceBergen. Adjusted operating income increased 7.1% to $245 million, up 8.3% on a constant currency basis, mainly reflecting sales growth and cost management.

During the fourth quarter the WBA board of directors declared a quarterly dividend of 46.75 cents per share, an increase of 2.2 percent. The dividend was payable September 11 to stockholders of record as of August 19, and raised the annual rate from $1.83 per share to $1.87 per share. This marked the 45th consecutive year that WBA and its predecessor company, Walgreen Co., have raised the dividend, and the 87th year a dividend has been paid.

 

 

 


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