Walgreens Boots Alliance reports Q2 results

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. So said CEO Rosalind Brewer, as WBA shared its results for the second quarter of fiscal 2023, which ended Feb. 28, 2023.

Brewer added, "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. 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."

WBA’s sales increased 3.3% from the year-ago quarter to $34.9 billion, an increase of 4.5% on a constant currency basis.

The company’s operating income was $.2 billion in the quarter compared to $1.2 billion in the same period a year ago.  Operating income in the quarter reflects 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% 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. health care. The decrease was partly offset by improved retail contributions in the U.S., and international growth, WBA said. 

Net earnings in the second quarter were $703 million compared to $883 million in the year-ago quarter. This decrease is driven by lower operating income partially offset by a $454 million after-tax gain from the partial sale of the company's equity method investment in AmerisourceBergen. Adjusted net earnings were $1 billion, down 26% on a constant currency basis, primarily driven by significantly lower COVID-19 vaccine and testing volumes compared to the prior year, WBA said.

[Read more: Walgreens eliminates task-based metrics for pharmacy staff]

EPS in the second quarter was 81 cents, compared to EPS of $1.02 in the year-ago quarter. Adjusted EPS decreased 27.2% to $1.16, a decrease of 25.8% on a constant currency basis, mainly due to a COVID-19 headwind of approximately 26%.

Sales in the first six months of fiscal 2023 were $68.2 billion, an increase of .9% from the year-ago period and an increase of 2.8% on a constant currency basis.

Operating loss in the first six months of fiscal 2023 was $6 billion compared to operating income of $2.5 billion in the year-ago period. Operating loss in the period reflects a $6.8 billion pre-tax charge for opioid-related claims and litigation.

Adjusted operating income was $2.2 billion, a decrease of 34.1% on a constant currency basis, reflecting a COVID-19 headwind of approximately 24%, planned payroll and IT investments in U.S. retail pharmacy and growth investments in U.S. health care. The decrease was partly offset by improved retail contributions in the U.S., and international growth, the company noted.

For the first six months of fiscal 2023, net loss was $3 billion compared to net earnings of $4.5 billion in the year ago period. This decrease is driven by a $5.4 billion after-tax charge for opioid-related claims and litigation offset by a $1.4 billion after-tax gain from the partial sale of the company's equity method investment in AmerisourceBergen, and lapping a $2.5 billion after-tax gain on the company's investments in VillageMD and Shields Health Solutions in the year-ago period. Adjusted net earnings were $2 billion, a decrease of 28.1% on a constant currency basis, primarily driven by lower adjusted operating income.

Loss per share for the first six months of fiscal 2023 was $3.50 compared to EPS of $5.15 from the year-ago period. Adjusted EPS decreased 29% to $2.32, reflecting a decrease of 27.9% on a constant currency basis, mainly due to a COVID-19 headwind of approximately 22%.

U.S. pharmacy comparable script volume growth of 3.5% excluding immunizations, ahead of expectations and sequentially improving vs. the first quarter of fiscal 2023.

The U.S. retail pharmacy segment had second quarter sales of $27.6 billion, a decrease of .3% from the year-ago quarter. Comparable sales increased 3.1% from the year-ago quarter while lapping strong comparable sales growth of 9.5% in the year-ago quarter, which included a significant contribution from COVID-19 vaccinations and testing.

Pharmacy sales increased .3% compared to the year-ago quarter, negatively impacted by a 3.5 percentage point headwind from AllianceRx Walgreens. Comparable pharmacy sales increased 4.9% in the quarter, benefiting from branded drug inflation. Comparable prescriptions filled in the quarter increased .2%, while comparable prescriptions excluding immunizations increased 3.5%, a sequential improvement of 140 basis points compared to the prior quarter. Total prescriptions filled in the quarter, including immunizations, adjusted to 30-day equivalents, decreased .7% to 298 million.

Retail sales decreased 1.8% and comparable retail sales decreased 1% in the second quarter compared to comparable sales growth of 14.7% in the prior year quarter. Excluding tobacco, comparable retail sales decreased .5% including a 500 basis point headwind from lower sales of OTC test kits. The decrease was partly offset by strong core growth across all categories.

[Read more: Retailer of the Year 2021: Walgreens seizes its omnichannel opportunity]

Gross profit decreased 10.2% compared with the year-ago quarter. Adjusted gross profit decreased 9.8%. 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.

Operating income in the second quarter was $.4 billion compared to operating income of $1.4 billion from 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% 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.

U.S. health care:

The U.S. healthcare segment had second-quarter 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% in the quarter. VillageMD, including Summit Health, grew pro forma sales 30%, reflecting existing clinic growth, and clinic footprint expansion. Shields grew pro forma sales 41%, driven by recent contract wins, further expansion of existing partnerships, and strong executional focus. CareCentrix grew pro forma sales 25% 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.

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.

International:

The international segment had second-quarter sales of $5.7 billion, an increase of 1.6% from the year-ago quarter, held back by an adverse currency impact of 7.5 percentage points. Sales increased 9% on a constant currency basis, with Boots UK sales growing 11%, and the Germany wholesale business growing 7.5%.

Boots UK comparable pharmacy sales increased 2% compared with the year-ago quarter, held back by lower demand for COVID-19 services. Boots UK comparable retail sales increased 16% compared to the year-ago quarter, growing market share for the eighth consecutive quarter. Footfall improved by 16% compared to the year-ago quarter. Boots.com continued to perform well, accounting for over 15% of retail sales in the quarter compared to approximately 9% pre-pandemic.

Gross profit decreased .7% compared with the year-ago quarter, including an adverse currency impact of 8.2 percentage points. Gross profit increased 7.5% on a constant currency basis, reflecting higher U.K. retail sales and solid execution in the Germany wholesale business. The decrease was partly offset by lower demand for COVID-19-related services in the U.K. and the adverse gross margin impact of National Health Service pharmacy funding, the company said.

Operating income increased 104% from the year-ago quarter to $353 million. Adjusted operating income increased 55.8% to $352 million, an increase of 65.7% on a constant currency basis.