Walgreens Boots Alliance raises guidance amid strong Q1 results

Walgreens Boots Alliance beat analysts’ expectations for fiscal first-quarter earnings as customers came to stores for COVID-19 vaccines and tests.

Sandra Levy

1/6/2022

Amid the continuing headwinds of the pandemic, Walgreens Boots Alliance posted a strong first quarter as customers came to stores for COVID-19 booster shots, at home COVID-19 tests, and vaccines for children.

For the quarter ended Nov. 30, the company’s sales from continuing operations increased 7.8% from the year-ago quarter to $33.9 billion, an increase of 7.6% on a constant currency basis, reflecting strong comparable sales growth at Walgreens and in the International segment.

“First quarter results exceeded our expectations, with a very encouraging performance across all our business segments,” Walgreens Boots Alliance CEO Rosalind Brewer said. “I am particularly excited about the progress we’re making in building out Walgreens Health. Our majority investments in VillageMD and Shields closed during the quarter, and we’re rolling out VillageMD primary care co-locations and Walgreens Health Corners at pace. The strong start to the fiscal year reinforces our confidence in the future, and as a result, we are raising our guidance for the full year and increasing investments in our people. Looking ahead, we are well positioned for sustainable, long-term value creation.”

Operating income from continuing operations was $1.3 billion in the first quarter compared to an operating loss of $535 million in the year-ago quarter. This was partly driven by a $1.5 billion charge from the company’s equity earnings in AmerisourceBergen in the year ago quarter.

Adjusted operating income from continuing operations was $1.8 billion, an increase of 48.5% on a constant currency basis. The increases reflect strong adjusted gross profit growth across both pharmacy and retail in the United States and a continued rebound in international segment sales and profitability, the company said.

Net earnings from continuing operations were $3.6 billion in the first quarter compared to a loss of $391 million from the year-ago quarter, reflecting a $2.5 billion after-tax gain due to the valuation of the company's previously held minority equity and debt investments in VillageMD and Shields in the three months ended Nov. 30, 2021, and a $1.2 billion charge, net of tax, from the company's equity earnings in AmerisourceBergen in the year-ago quarter. Adjusted net earnings from continuing operations increased to $1.5 billion, up 53.5% on a reported and constant currency basis compared with the year-ago quarter.

EPS from continuing operations in the first quarter was $4.13, compared with a loss of $0.45 in the year-ago quarter. Adjusted EPS from continuing operations was $1.68, an increase of 53.2% on a reported basis and an increase of 53.1% on a constant currency basis.

Net cash provided by operating activities was $1.1 billion in the first quarter and free cash flow was $645 million, a $118 million decrease compared with the year-ago quarter. This was primarily driven by phasing of working capital, COVID-19 related government support in the year-ago quarter and increased capital expenditures, the company noted.

The United States segment had first quarter sales of $28 billion, an increase of 3.2% from the year-ago quarter, held back by a decline in the AllianceRx Walgreens Prime business. Comparable sales increased 7.9% from the year-ago quarter.

Pharmacy sales increased 1.1%. Excluding the AllianceRx Walgreens Prime business, sales grew 5.8% in the quarter. Comparable pharmacy sales increased 6.8% in the quarter compared to a year-ago, with prescriptions filled increasing by 6.2%, including a positive impact of approximately 535 basis points from COVID-19 vaccinations.

Retail sales increased 10.1% and comparable retail sales increased 10.6% in the first quarter compared with the year-ago quarter. Excluding tobacco and e-cigarettes, comparable retail sales increased 11.7%, reflecting broad based growth across all categories. In particular, health and wellness increased 24.7% aided by at-home COVID-19 tests and cough cold flu, and beauty and personal care increased 16.6% and 11.6%, respectively.

Gross profit increased 12.6% compared with the year-ago quarter. Adjusted gross profit increased 12.3% driven by strong sales growth. This was partially offset by reimbursement, the company said.

Operating income in the first quarter increased to $1.4 billion compared to a net operating loss of $504 million in the year-ago quarter. Adjusted operating income increased 46.3%, to $1.7 billion.

WBA noted that it continues to play a leading role in fighting the COVID-19 pandemic, with Walgreens administering over 56 million vaccines to date, including 15.6 million in the first quarter.

The International segment had first quarter sales of $5.8 billion, an increase of 35.8% from the year-ago quarter, including a favorable currency impact of 1.6%. Sales increased 34.2% on a constant currency basis, including higher sales associated with the formation of the company's wholesale joint venture in Germany. Excluding this benefit, International segment sales on a constant currency basis increased 8.6%, reflecting the ongoing recovery in the UK market, following the lifting of COVID-19 restrictions in July, according to the company.

Boots UK comparable pharmacy sales increased 8.8% compared with the year-ago quarter, reflecting stronger demand for pharmacy services. Boots UK comparable retail sales increased 16.3% compared with the year-ago quarter. Footfall improved but traffic still remains below pre-COVID-19 levels. Boots.com continued to perform well, with digital sales in the first quarter almost doubling compared with the equivalent quarter pre-COVID-19.

Gross profit increased 21.9% compared with the same quarter a year ago, including a favorable currency impact of 3.7%. Adjusted gross profit increased 18.2% on a constant currency basis, reflecting strong UK growth, and higher gross profit associated with inclusion of a full quarter of results from the company's wholesale joint venture in Germany. This was partly offset by favorable timing of NHS reimbursement in the year-ago quarter.

Operating income grew 39.8%, including an adverse currency impact of 3.8%, to $54 million. Adjusted operating income grew strongly to $164 million, an increase of 88.6% on a constant currency basis, compared with the year-ago quarter.

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