Sales increased 3.3% year-over-year, to $34.9 billion

DEERFIELD, Ill. — Walgreens Boots Alliance’s second quarter sales and earnings topped Wall Street’s forecast, even as its net profit slid more than 20%.

The company reported adjusted earnings per share of $1.16 on revenue of $34.9 billion (up 3.3%). Analysts had estimated adjusted EPS of $1.10 on revenue of $33.5 billion.

WBA’s net profit of $703 million, or 81 cents a share, was down from $883 million, or $1.02 a share, in the year-ago period. The decrease was driven by lower operating income partially offset by a $454 million after-tax gain from the partial sale of the equity method investment in AmerisourceBergen. Adjusted net earnings were $1 billion, down 26 percent on a constant currency basis, primarily because of significantly lower COVID-19 vaccine and testing volumes compared to the prior year.

“WBA exited a solid second quarter with acceleration in February, adding to our confidence in driving strong growth in the second half of the year,” said CEO Rosalind Brewer, “With the closing of VillageMD’s acquisition of Summit Health, WBA is now one of the largest players in primary care, with best-in-class assets across the care continuum. Both Walgreens and Boots are performing well by delivering compelling value to consumers, playing a critical role as community health destinations, and successfully navigating a challenging environment. We will continue to take bold actions to create sustainable long-term shareholder value.”

Operating income was $0.2 billion compared to $1.2 billion in the year-ago quarter, reflecting a $306 million pre-tax charge for opioid-related claims and litigation, Summit Health acquisition costs and higher costs related to the Transformational Cost Management Program. Adjusted operating income was $1.2 billion, a decrease of 25.4 percent on a constant currency basis, reflecting lower volumes of COVID-19 vaccinations and testing lapping the year-ago period’s Omicron surge, planned payroll investments in U.S. Retail Pharmacy, and investments in U.S. Healthcare, partly offset by improved retail contributions in the U.S., and International growth.

Roz Brewer

The U.S. Retail Pharmacy segment had sales of $27.6 billion, a decrease of 0.3 percent from the year-ago quarter. Comparable sales increased 3.1 percent from the year-ago quarter while lapping strong comparable sales growth of 9.5 percent in the year-ago quarter, which included a significant contribution from COVID-19 vaccinations and testing.

Pharmacy sales increased 0.3 percent compared to the year-ago quarter, negatively impacted by a 3.5 percentage point headwind from AllianceRx Walgreens. Comparable pharmacy sales increased 4.9 percent, benefitting from branded drug inflation. Comparable prescriptions filled increased 0.2 percent, while comparable prescriptions excluding immunizations increased 3.5 percent, a sequential improvement of 140 basis points compared to the prior quarter. Total prescriptions filled, including immunizations, adjusted to 30-day equivalents, decreased 0.7 percent to 298.0 million.

Retail sales decreased 1.8 percent and comparable retail sales decreased 1. percent compared to growth of 14.7 percent in the prior year quarter. Excluding tobacco, comparable retail sales decreased 0.5 percent including a 500 basis point headwind from lower sales of OTC test kits, partly offset by strong core growth across all categories.

Gross profit decreased 10.2 percent compared with the year-ago quarter. Adjusted gross profit decreased 9.8 percent. Gross profit and adjusted gross profit were entirely driven by a 10 percentage point headwind from lower contributions from COVID-19 vaccinations and testing. Reimbursement net of procurement savings was offset by higher retail gross profit from gross margin expansion and strong underlying sales performance across categories.

Selling, general and administrative expenses (SG&A) increased 6.3 percent to $5.5 billion, including a $306 million pre-tax charge for opioid-related claims and litigation in the current quarter. Adjusted SG&A decreased 3.2 percent to $4.9 billion, driven by reduced labor for lower volumes of COVID-19 vaccinations and testing and savings from the Transformational Cost Management Program, partly offset by increased labor investments.

Operating income  was $0.4 billion compared to $1.4 billion in the year-ago quarter, reflecting the $306 million charge related to opioid claims and litigation in the current quarter. Adjusted operating income decreased 32.8 percent to $1.1 billion from the year-ago quarter, reflecting a 29 percentage point headwind from lower contributions of COVID-19 vaccinations and testing, continued reimbursement pressure net of procurement, and planned labor investments. These impacts were partly offset by improved retail gross profit, driven by gross margin expansion and strong underlying sales performance across categories.

The U.S. Healthcare segment had sales of $1.6 billion, an increase of $1.1 billion compared to the year-ago quarter. On a pro forma basis, the segment’s businesses grew sales at a combined rate of 30 percent in the quarter. VillageMD, including Summit Health, grew pro forma sales 30 percent, reflecting existing clinic growth, and clinic footprint expansion. Shields grew pro forma sales 41 percent, driven by recent contract wins, further expansion of existing partnerships, and strong executional focus. CareCentrix grew pro forma sales 25 percent as a result of additional service offerings with existing partners.

Gross profit was $32 million as Shields and CareCentrix gross profit was more than offset by VillageMD’s expansion. VillageMD added 133 clinics compared to the year-ago quarter. Adjusted gross profit was $110 million, an increase of $95 million compared to the year-ago period as the segment continues to rapidly scale.

SG&A was $504 million, and adjusted SG&A was $269 million. Adjusted SG&A increased by $177 million compared to the year-ago quarter, primarily due to the acquisitions of CareCentrix and Summit Health which were not included in the year-ago quarter, and higher investments in the organic business.

Operating loss was $472 million. Adjusted operating loss was $159 million, which excludes certain costs related to stock compensation, amortization of acquired intangible assets, and acquisition related costs. Adjusted EBITDA loss was $109 million, reflecting VillageMD expansion and higher organic business investments, partly offset by positive contributions from Shields and CareCentrix.

The International segment had sales of $5.7 billion, an increase of 1.6 percent from the year-ago quarter, held back by an adverse currency impact of 7.5 percentage points. Sales increased 9.0 percent on a constant currency basis, with Boots UK sales growing 11.0 percent, and the Germany wholesale business growing 7.5 percent.

Boots UK comparable pharmacy sales increased 2.0 percent compared with the year-ago quarter held back by lower demand for COVID-19 services. Boots UK comparable retail sales increased 16.0 percent compared to the year-ago quarter, growing market share for the eighth consecutive quarter. Footfall improved by 16 percent, compared to the year-ago quarter. Boots.com continued to perform well, accounting for over 15 percent of retail sales in the quarter compared to approximately 9 percent pre-pandemic.

Gross profit decreased 0.7 percent compared with the year-ago quarter, including an adverse currency impact of 8.2 percentage points. Gross profit increased 7.5 percent on a constant currency basis, reflecting higher UK retail sales and solid execution in the Germany wholesale business, partly offset by lower demand for COVID-19 related services in the UK and the adverse gross margin impact of National Health Service pharmacy funding.

SG&A decreased 18.2 percent from the year-ago quarter to $846 million, including a favorable currency impact of 7.6 percentage points, and lower acquisition related costs. Adjusted SG&A decreased 5.9 percent on a constant currency basis, reflecting real estate gains from the company’s cash mobilization program in Germany, and effective cost management, partly offset in the UK by increased in-store and marketing activities, higher inflation, and lapping temporary COVID-19 related benefits in the year-ago quarter.

Operating income increased 104.0 percent from the year-ago quarter to $353 million. Adjusted operating income increased 55.8 percent to $352 million, an increase of 65.7 percent on a constant currency basis.