8-K: Walgreens Boots Alliance Reports Mixed Q1 Results, Maintains Full-Year EPS Guidance

Walgreens Boots Alliance reported a first quarter loss per share of $0.31, but maintained its full-year adjusted EPS guidance of $1.40 to $1.80.

Summary

• Walgreens Boots Alliance (WBA) announced its financial results for the first quarter of fiscal year 2025, which ended November 30, 2024.
• The company reported a loss per share of $0.31, compared to a loss of $0.08 in the same quarter last year, which includes costs related to the Footprint Optimization Program and fair value adjustments on derivatives.
• Adjusted earnings per share (EPS) were $0.51, down from $0.66 in the prior year, due to lower U.S. retail sales and prior year sale-leaseback gains, partially offset by cost savings and growth in U.S. Healthcare.
• First quarter sales increased by 7.5 percent year-over-year to $39.5 billion, or 6.9 percent on a constant currency basis.
• The company is maintaining its fiscal 2025 adjusted EPS guidance of $1.40 to $1.80, with growth in U.S. Healthcare and International expected to be offset by a decline in U.S. Retail Pharmacy, a higher adjusted effective tax rate, and lower contributions from sale-leaseback and Cencora earnings.
• The U.S. Retail Pharmacy segment saw sales increase by 6.6 percent to $30.9 billion, with comparable sales up 8.5 percent, but adjusted operating income decreased by 36.4 percent to $441 million.
• The International segment experienced a 10.2 percent sales increase to $6.4 billion, with adjusted operating income up 17.9 percent to $168 million.
• The U.S. Healthcare segment had sales of $2.2 billion, with an adjusted operating income of $25 million, compared to a loss of $96 million in the prior year.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative. While the company is maintaining its full-year guidance and showing some positive trends in healthcare and international segments, the overall results are mixed with a significant loss per share and a decline in adjusted EPS. The company is also facing challenges in its core retail pharmacy business.

Positives

• Sales increased by 7.5 percent year-over-year to $39.5 billion, indicating growth across all business segments.
• The U.S. Healthcare segment showed significant improvement, with adjusted operating income of $25 million compared to a loss of $96 million in the prior year.
• Net cash used for operating activities improved by $141 million compared to the prior year.
• Free cash flow improved by $363 million year-over-year, driven by lower capital expenditures and higher adjusted operating income excluding sale-leaseback.
• The International segment saw strong growth, with sales up 10.2 percent and adjusted operating income up 17.9 percent.
• Boots.com sales grew 30 percent, representing 22 percent of Boots total retail sales.

Negatives

• The company reported a loss per share of $0.31, compared to a loss of $0.08 in the same quarter last year.
• Adjusted earnings per share (EPS) decreased to $0.51 from $0.66 in the prior year.
• U.S. Retail Pharmacy adjusted operating income decreased by 36.4 percent to $441 million.
• Retail sales in the U.S. decreased by 6.2 percent, reflecting a weaker cough cold flu season and lower sales in discretionary categories.
• The company's operating loss was $245 million, compared to an operating loss of $39 million in the year-ago quarter.

Risks

• The company faces challenges in the U.S. Retail Pharmacy segment, with declining retail sales and lower adjusted operating income.
• The company's performance is impacted by a higher adjusted effective tax rate and lower contributions from sale-leaseback and Cencora earnings.
• The company is exposed to risks related to global macroeconomic conditions, including inflation, high interest rates, and supply chain disruptions.
• The company's turnaround efforts will take time, and there is no guarantee of success.
• The company is subject to risks related to opioid-related claims and litigation settlements.

Future Outlook

The company is maintaining its fiscal 2025 adjusted EPS guidance of $1.40 to $1.80, with growth in U.S. Healthcare and International expected to be offset by a decline in U.S. Retail Pharmacy, a higher adjusted effective tax rate, and lower contributions from sale-leaseback and Cencora earnings.

Management Comments

• Our first quarter results reflect our disciplined execution against our 2025 priorities: stabilizing the retail pharmacy by optimizing our footprint, controlling operating costs, improving cash flow and continuing to address reimbursement models, said Tim Wentworth, Chief Executive Officer, Walgreens Boots Alliance.
• While our turnaround will take time, our early progress reinforces our belief in a sustainable, retail pharmacy-led operating model.

Industry Context

The results reflect the ongoing challenges in the retail pharmacy sector, including reimbursement pressures and changing consumer behavior, while also highlighting the growth potential in healthcare services and international markets. The company's focus on cost savings and strategic initiatives aligns with broader industry trends.

Comparison to Industry Standards

• WBA's performance in the U.S. Retail Pharmacy segment, with a decline in retail sales, contrasts with some competitors who have seen more stable or positive growth in this area, such as CVS Health.
• The growth in WBA's International segment, particularly Boots UK, is comparable to other international retail pharmacy chains, such as those in Europe, that have seen a rebound in sales post-pandemic.
• The improvement in WBA's U.S. Healthcare segment is in line with the industry trend of healthcare companies expanding into services beyond traditional retail pharmacy, similar to CVS's Aetna acquisition and UnitedHealth's Optum business.
• WBA's adjusted EPS of $0.51 is lower than some of its peers, such as CVS Health, which reported higher adjusted EPS in their recent quarters, indicating that WBA's turnaround is still in progress.

Stakeholder Impact

• Shareholders may be concerned about the reported loss per share and the decline in adjusted EPS, but may be reassured by the maintained full-year guidance.
• Employees may be affected by the ongoing restructuring and cost-saving initiatives.
• Customers may experience changes in the retail pharmacy experience as the company optimizes its footprint.
• Suppliers may be impacted by changes in the company's purchasing patterns.
• Creditors will be monitoring the company's cash flow and debt levels.

Next Steps

• The company will continue to execute its 2025 priorities, focusing on stabilizing the retail pharmacy, controlling costs, and improving cash flow.
• WBA will continue to address reimbursement models with its partners.
• The company will continue to focus on the expansion and future operating and financial results of its U.S. Healthcare segment.

Key Dates

Keywords

Walgreens Boots Alliance, WBA, Financial Results, Earnings, Retail Pharmacy, Healthcare, International, EPS, Sales, Operating Income, Guidance