U.S. stores post solid growth

DEERFIELD, Ill.— Walgreens Boots Alliance easily beat Wall Street’s estimates for third quarter sales and earnings, and raised its full year guidance.

WBA’s adjusted earnings per share of $1.51 far surpassed analysts’ expectation of $1.17.  Sales for the period ended May 31 rose 12.1% to $34.03 billion, topping the projected $33.76 billion. The gain reflecting strong growth in the International segment, aided by the formation of the company’s joint venture in Germany during the fiscal year, and solid growth in the United States segment.

The company posted a net profit of $1.2 billion, or $1.38 per share, compared with a net loss of $1.71 billion, or $1.95 per share, last year.

“This quarter’s results demonstrate continued momentum, and while challenges lie ahead, we are in a strong position to grow and innovate our core retail and pharmacy businesses for the future,” said CEO Rosalind Brewer. “We are accelerating our investments to advance our operational excellence, including technology innovations that support mass personalization, pharmacy of the future and the next phase of growth in tech-enabled healthcare. These investments are fueled by our Alliance Healthcare divestiture. I remain proud of our team members and the essential role they are playing to help end the pandemic as the communities we serve continue to turn to our trusted brands and expert pharmacists.”

The company now foresees growth of about 10% in adjusted EPS for the fiscal year, thanks to a resurgence of sales and increased business from COVID-19 vaccinations. It had earlier projected growth in the mid-to-high single digits. Walgreens has administered more than 25 million COVID-19 shots.

WBA completed the divestiture of the Alliance Healthcare businesses to AmerisourceBergen for a total consideration of $6.5 billion, made up of $6.275 billion in cash (subject to a customary net cash and working capital adjustment, which will result in an additional net cash inflow of approximately $0.3 billion) and 2 million shares of AmerisourceBergen common stock. The company has used a portion of the proceeds to eliminate $3.3 billion in debt from its balance sheet and will deploy the remainder to accelerate growth of its core retail pharmacy and health care businesses.

Operating income  was $1.1 billion in the third quarter, compared with a loss of $1.7 billion a year ago, primarily due to $2 billion non-cash impairment charges last year related to goodwill and intangible assets in Boots UK. Adjusted operating income from continuing operations increased 82.9% on a reported currency basis to $1.5 billion, an increase of 82.4% on a constant currency basis. The increases reflect strong adjusted gross profit growth across both pharmacy and retail in the United States and a rebound in International segment sales and profitability due to less severe COVID-19 restrictions in the UK.

The total net earnings of $1.2 billion reflected non-cash impairment charges in the previous period, increased operating income in both segments and earnings from the company’s equity method investment related to Option Care Health; this was partially offset by a higher effective tax rate driven by discrete items in the year-ago quarter. Total adjusted net earnings in constant currency increased 79.5% to $1.3 billion.

Total EPS  were $1.38, compared with a loss of $1.95 last year. Total adjusted EPS increased 83.4% to $1.51, up 81.4%  on a constant currency basis.

Net earnings from continuing operations were $1.1 billion, compared to a loss of $1.8 billion a year ago. Adjusted net earnings from continuing operations increased 93.1% to $1.2 billion, up 91.6% on a constant currency basis.

EPS from continuing operations were $1.27 compared with a loss of $2.05 a year ago. Adjusted EPS from continuing operations were $1.38 compared with $0.71 last year, reflecting an increase of 93.6%  on a constant currency basis.

Net cash provided by operating activities was $1.8 billion in the third quarter and free cash flow was $1.4 billion, a $788 million increase compared with the year-ago quarter.

The U.S. segment had third quarter sales of $28.7 billion, an increase of 5.1%. Comparable sales increased 6.4%, reflecting an 8.4% increase in comparable pharmacy sales and a 1.7% increase in comparable front-end sales.

Within comparable sales, prescriptions filled in the third quarter increased 9.8%, including a positive impact of approximately 600 basis points from COVID-19 vaccinations. Total prescriptions filled in the quarter increased 8.7% to 312.1 million, including immunizations, adjusted to 30-day equivalents. Pharmacy sales, which accounted for 75.7% of the segment’s sales, increased 6.3%.

Retail sales increased 1.4%, including adverse impacts from the store optimization programs.

Comparable front-end sales increased 1.7%, reflecting mass personalization and strength in beauty and photo aided by improved traffic trends. Comparable front-end sales excluding tobacco and e-cigarettes increased 2.6 percent.

Gross profit increased 15.5% and adjusted gross profit increased 14.5%, in both cases reflecting strong sales growth, favorable retail margin due to product mix and improved pharmacy margin entirely due to product mix from COVID-19 vaccinations.

Third quarter SG&A decreased by 0.4 percent, and adjusted SG&A increased by 6.5%, primarily driven by a negative impact of approximately 500 basis points from COVID-19 related costs, mainly related to the vaccination program, as well as higher growth investments, partially offset by cost savings related to the Transformational Cost Management Program.

Operating income in the third quarter increased to $1.2 billion compared with $528 million a year ago. Adjusted operating income increased 50.3%, to $1.5 billion, reflecting strong adjusted gross profit across both pharmacy and retail, partly offset by significant costs related to the vaccination program and higher growth investments.

The International segment had third quarter sales of $5.3 billion, an increase of 75.8 percent, including a favorable currency impact of 17.1 %. Sales increased 58.7% on a constant currency basis, which includes the impact of the company’s wholesale joint venture in Germany, which was consolidated as of November. Excluding incremental sales from the joint venture, International segment sales on a constant currency basis increased 12.1%, reflecting a partial recovery in the UK market as COVID-19 restrictions were eased.

Boots UK comparable pharmacy sales increased 3.7%, reflecting stronger pharmacy services and favorable timing of NHS reimbursement, partially offset by lower prescription volume.

Boots UK comparable retail sales increased 38.7%. Footfall on the high street showed early signs of recovery amid a partial easing of strict lockdown measures, though travel locations in airports and train stations continued to face challenges.

Boots.com continued to perform strongly, with sales growth of 42.3%.

Gross profit increased 55.0%, including a favorable currency impact of 16.3%. Adjusted gross profit increased 38.6% on a constant currency basis, reflecting the ongoing recovery in UK retail sales.

SG&A in the quarter decreased 63.9% to $1.0 billion, including an adverse currency impact of 3.8% and the non-cash impairment charges in a year ago. On a constant currency basis, adjusted SG&A increased 5.2%, due entirely to the higher SG&A associated with the formation of the Germany joint venture. Excluding the Germany joint venture impact, both SG&A and adjusted SG&A decreased, reflecting cost savings from the Transformational Cost Management Program.

Operating income, including a favorable currency impact of 0.1 percent, was $36 million compared with a loss of $2.2 billion, which was primarily a result of the non-cash impairment charges. Adjusted operating income was $94 million, an increase of $222 million on a constant currency basis, reflecting less severe UK COVID-19 restrictions, Boots.com performance and cost management actions.