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WBA tops Q3 sales and earnings forecasts

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Walgreens Health progresses on several fronts

DEERFIELD, Ill. — Walgreens Boots Alliance posted third quarter sales and earnings that beat Wall Street’s projections.

The company’s adjusted earnings per share of 96 cents topped analysts’ forecast of 92 cents, while its revenue of $32.6 billion exceeded the predicted $32.06 billion.

WBA said it was maintaining its full year adjusted EPS guidance of low-single digit growth, as year-to-date performance is tracking broadly in line with expectations.

Roz Brewer

Roz Brewer

“WBA delivered strong execution across operating segments and against very robust growth last year,” said CEO Roz Brewer. “Third quarter results were broadly in line with our expectations, demonstrating the resilience of our business through our deep community connections and relevance to consumers. Walgreens Health achieved 65 percent pro forma sales growth with progress on several fronts, including adding Buckeye Health Plan as a strategic partner, already exceeding our 2022 target for covered lives, and launching our clinical trials business. With our decision to conclude the Boots strategic review, I firmly believe that our strategic actions are working to deliver long-term shareholder value.”

Sales for the three months ended May 31 were down 4.2 percent from the year-ago quarter. Sales growth at Walgreens and in the International segment, and  contributions from the Walgreens Health segment were more than offset by a 720 basis point impact from the sales decline at AllianceRx Walgreens.

The company had an operating loss of $320 million compared to operating income of $1.1 million billion a year earlier. The loss reflects a $683 million charge related to the opioid settlement with the state of Florida and higher costs related to the Transformational Cost Management Program.

Adjusted operating income was $1.0 billion, a decrease of 33.5 percent on a constant currency basis. The decline in both adjusted and operating income reflects a decrease in the U.S. pharmacy operating result as it lapped prior year peak COVID-19 vaccinations, and growth investments in Walgreens Health, partly
offset by improved retail contributions in both the U.S. and International segments.

Net earnings decreased 73.8 percent to $289 million compared to $1.1 billion a year ago.  Adjusted net earnings decreased 30.2 percent to $834 million, down 29.1 percent.

EPS decreased 73.8 percent to $0.33 compared to EPS of $1.27 in the year-ago quarter. Adjusted EPS was down 30.0 percent .

Net cash was $1.6 billion in the quarter and free cash flow was $1.3 billion, down $187 million from last year, primarily because of lower U.S. operating income, reduced volume from the AllianceRx Walgreens business, and increased capital expenditures in growth initiatives, partly offset by working capital.

The United States segment had third quarter sales of $26.7 billion, a decrease of 7.1 percent, driven by a decline in the AllianceRx Walgreens business. Comparable sales increased 1.8 percent.

Pharmacy sales decreased 9.7 percent, negatively impacted by an 11 percentage point headwind from the AllianceRx Walgreens business. Comparable pharmacy sales increased 2.0 percent. Comparable prescriptions filled decreased 1.8 percent; excluding immunizations, comparable prescriptions increased 2.1 percent. Total prescriptions filled in the quarter decreased 2.5 percent to 304 million, including immunizations, adjusted to 30-day equivalents.

Front store sales increased 1.0 percent and comparable retail sales increased 1.4 percent. Excluding tobacco and e-cigarettes, comparable retail sales increased 2.4 percent. The increase reflects strong growth in health and wellness, which increased 7.9 percent aided by at-home COVID-19 tests and cough cold flu and a 2.6 percent increase in personal care, partly offset by beauty, and consumables and general merchandise, which decreased 0.4 percent and 1.9 percent, respectively. Consumables and general merchandise lapped strong sales in COVID-19 related items and were impacted by the planned decline in tobacco.

Gross profit decreased 9.8 percent to $5.5 billion compared to $6.1 billion in the year-ago quarter. Adjusted gross profit decreased 9.6 percent to $5.6 billion, reflecting a decline in pharmacy results as it lapped prior year peak COVID-19 vaccinations, partly offset by positive contributions from retail performance.

Selling, general and administrative expenses (SG&A) increased 15.0 percent to $5.7 billion compared to $5.0 billion in the year-ago quarter, including a $683 million charge related to an accrual for the opioid settlement with Florida and higher costs related to the Transformational Cost Management Program. Adjusted SG&A decreased 0.9 percent to $4.8 billion, driven by lower volumes of COVID-19 vaccinations and cost discipline, partly offset by increased labor costs and the timing of marketing expenditures.

Operating loss in the third quarter decreased to $90 million compared to operating income of $1.2 billion in the year-ago quarter reflecting the opioid settlement and higher Transformational Cost Management Program costs. Adjusted operating income decreased 34.4 percent to $966 million compared to $1.5 billion in the year-ago quarter reflecting strong prior period results which included peak COVID-19 vaccination volumes, with positive contributions from growth at retail in the current period.

The International segment had third quarter sales of $5.3 billion, an increase of 0.3 percent, including an adverse currency impact of 9.0 percent. Sales increased 9.3 percent on a constant currency basis, with Boots UK sales growing 13.5 percent, and the German wholesale business growing 6.8 percent.

Boots UK comparable pharmacy sales decreased 0.4 percent. Growth in comparable National Health Service (NHS) volumes was more than offset by favorable timing on NHS reimbursement in the year-ago quarter. Boots UK comparable retail sales increased 24.0 percent, with market share gains across all categories, led by beauty. Footfall improved; however, traffic remains below pre-COVID-19 levels. Boots.com continued to perform well, accounting for over 13 percent of retail sales compared to 6 percent pre-pandemic.

Gross profit increased 3.2 percent, including an adverse currency impact of 8.0 percent. Adjusted gross profit increased 11.3 percent on a constant currency basis, reflecting strong sales growth in the UK.

SG&A decreased 2.9 percent to $1.0 billion, including a favorable currency impact of 7.0 percent. Adjusted SG&A increased 2.4 percent on a constant currency basis. Excluding currency impacts, the increase in both SG&A and adjusted SG&A reflects increased investments in labor and marketing, and COVID-19 related government support in the year-ago quarter, partly offset by a gain in the UK from a leaseback transaction.

Operating income increased to $100 million compared to $36 million last year. Operating income was negatively impacted 36.9 percentage points ($13 million) as a result of currency translation. Adjusted operating income grew strongly to $174 million, more than doubling the year-ago quarter on a constant currency basis.

The Walgreens Health segment had third quarter sales of $596 million. On a pro forma basis, compared to their year-ago standalone results, these businesses grew sales at a combined rate of 65 percent in the quarter. Shields grew 47 percent, driven by key contract wins, further expansion of existing partnerships, and strong executional focus. VillageMD grew 69 percent, reflecting existing clinic growth and footprint expansion.

Gross loss and adjusted gross loss were each $21 million. Shields gross profit, driven by further growth at existing partnerships and expanding margins, was more than offset by growth investments at VillageMD. As of the end of the third quarter, VillageMD had 315 total clinics open, an increase of 97 clinics compared to the year-ago quarter.

Third quarter SG&A was $213 million, and adjusted SG&A was $108 million reflecting the two acquisitions, as well as continued investments in the Walgreens Health organically-developed business. Adjusted SG&A excludes certain costs related to stock compensation expense and amortization of acquired intangible assets. Operating loss was $234 million. Adjusted operating loss was $129 million.


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