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Walgreens Boots Alliance reports Q4, fiscal 2022 results

WBA's fourth quarter sales from continuing operations decreased 5.3% from the year-ago quarter to $32.4 billion, a decrease of 3.2% on a constant currency basis.
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As it undergoes a transformation to be a more consumer-centric healthcare company, Walgreens Boots Alliance today in reporting Q4 and fiscal year results, reported that sales from continuing operations decreased 5.3% from the year-ago quarter to $32.4 billion, a decrease of 3.2% on a constant currency basis. Sales growth at Walgreens and in the international segment, and sales contributions from the U.S. healthcare segment were more than offset by a 660 basis point impact from the sales decline at AllianceRx Walgreens, the company said.

Fourth quarter operating loss from continuing operations was $822 million compared to operating income of $910 million in the year-ago quarter. Operating loss in the quarter reflects a $783 million non-cash impairment charge related to intangible assets in Boots U.K. and higher costs related to the Transformational Cost Management Program. Adjusted operating income from continuing operations was $744 million, a decrease of 38.2% on a constant currency basis, reflecting lower U.S. pharmacy operating results as it lapped higher volumes of prior year COVID-19 vaccinations and growth investments in U.S. Healthcare. The decrease was partly offset by improved retail contributions in both the U.S. Retail Pharmacy and International segments. 

"WBA has delivered ahead of expectations in the first year of our transformation to a consumer-centric healthcare company," said CEO Rosalind Brewer. "Our resilient business achieved growth while navigating macroeconomic headwinds. Fiscal 2023 will be a year of accelerating core growth and rapidly scaling our U.S. healthcare business. Our execution to date provides us visibility and confidence to increase the long-term outlook for our next growth engine and reconfirm our path to low-teens adjusted EPS growth. Our strategic actions are unlocking sustainable shareholder value as we simplify the company and continue our journey to being a healthcare leader." 

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Net loss from continuing operations in the fourth quarter was $415 million compared to net income of $358 million in the year-ago quarter, reflecting the decline in operating income, which was partly offset by the favorable impact of a lower tax rate, and a gain on the sale of a portion of the company's equity method investment in Option Care Health. Adjusted net earnings from continuing operations decreased 31.9% to $694 million, down 30.2% on a constant currency basis compared with the year-ago quarter, WBA said.

Loss per share from continuing operations was 48 cents, compared to earnings per share of 41 cents in the year-ago quarter. Adjusted earnings per share from continuing operations decreased 31.8% to 80 cents, reflecting a decrease of 30% on a constant currency basis.

Net cash provided by operating activities was $85 million in the fourth quarter and free cash flow was $(407) million, a $1.3 billion decrease compared with the year-ago quarter driven primarily by lower operating income, pre-buy of seasonal inventory, U.S. legal settlements and increased capital expenditures in growth initiatives. The decrease was partly offset by working capital timing benefits, WBA said.

Sales from continuing operations in fiscal 2022 increased 0.1% from the year-ago period to $132.7 billion, up 1.2% on a constant currency basis, reflecting comparable sales growth at Walgreens and in the International segment as well as contributions from U.S. Healthcare acquisitions. This increase was partly offset by a 550 basis point impact from the sales decline at AllianceRx Walgreens, the company said.

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Operating income from continuing operations in fiscal 2022 decreased 40.8% to $1.4 billion, compared with $2.3 billion in the year-ago period. This reflects a $783 million Boots UK impairment charge, a $683 million charge related to the opioid settlement with the State of Florida and higher Transformational Cost Management program costs, partly offset by a $1.5 billion charge in the prior fiscal year related to the company's equity earnings from AmerisourceBergen. Adjusted operating income from continuing operations increased 0.3% on a reported basis to $5.1 billion, up 1.2% on a constant currency basis. The increase reflects improved retail contribution in the United States and a continued rebound in International sales and profitability. The increase was partly offset by a decrease in U.S. pharmacy operating results, and by growth investments in U.S. Healthcare, the company noted.

Net earnings from continuing operations were $4.3 billion in fiscal 2022, compared with $2 billion in the year-ago period, reflecting a $2.5 billion after-tax gain in the first quarter due to the remeasurement of the company's previously held investments in VillageMD and Shields Health Solutions, and a $1.2 billion charge, net of tax, in the prior fiscal year from the company's equity earnings in AmerisourceBergen. This was partly offset by impairment charges in Boots UK in the fourth quarter, and the charge related to the Florida opioid settlement in the third quarter. Adjusted net earnings from continuing operations increased 2.5% compared with the year-ago period to $4.4 billion, up 3.3% on a constant currency basis, the company said.

EPS from continuing operations for fiscal 2022 increased to $5.01, compared with $2.30 in the year-ago period. Adjusted EPS from continuing operations was $5.04, an increase of 2.5% on a reported basis and an increase of 3.4% on a constant currency basis.

Net cash provided by operating activities was $3.9 billion in fiscal 2022. Free cash flow was $2.2 billion, a decrease of $2 billion from fiscal 2021 driven by lower free cash flow from the AllianceRx Walgreens business, the absence of COVID-19 related government support, seasonal inventory pre-buy, U.S. legal settlements and increased capital expenditures in growth initiatives, including the VillageMD footprint expansion, the rollout of microfulfillment centers and digital transformation initiatives, partly offset by working capital initiatives and timing benefits.

WBA’s U.S. digital sales grew 14% in Q4, on top of 82% in the year-ago period.

The U.S. retail pharmacy segment had fourth quarter sales of $26.7 billion, a decrease of 7.2% from the year-ago quarter. Comparable sales increased 1.6% from the year-ago quarter and lapped strong comparable sales of 8.1% in the year-ago quarter, which included a significant contribution from COVID-19 vaccinations.

Pharmacy sales decreased 8.8% compared to the year-ago quarter, negatively impacted by a 10 percentage point headwind from AllianceRx Walgreens. Comparable pharmacy sales increased 3% in the fourth quarter compared with the year-ago quarter. Comparable prescriptions filled in the fourth quarter decreased 3.5% while comparable prescriptions excluding immunizations decreased 0.1% compared with the year-ago quarter. Total prescriptions filled in the quarter, including immunizations, adjusted to 30-day equivalents, decreased 4.4% to 298.7 million.

Retail sales decreased 2.4% and comparable retail sales decreased 1.9% compared with the year-ago quarter. Excluding tobacco, comparable retail sales decreased 1.1%. Comparable retail sales lapped strong results in the year ago quarter where comparable retail sales increased 6.2%, aided by broad based growth across all categories including strong sales of COVID-19 related items. Over a three-year period, comparable retail sales excluding tobacco increased 13%.

Gross profit decreased 15.3% to $5.3 billion compared to $6.3 billion in the year-ago quarter. Adjusted gross profit decreased 13.2 % to $5.4 billion compared to the year-ago quarter, reflecting a decline in pharmacy results from lower COVID-19 vaccinations and continued reimbursement pressure, partly offset by retail gross margin performance.

Operating income in the fourth quarter decreased 75.2% to $251 million compared to operating income of $1 billion in the year-ago quarter, reflecting higher costs related to the Transformational Cost Management Program. Adjusted operating income decreased 36.1% to $786 million compared to $1.2 billion in the year-ago quarter, reflecting lower COVID-19 vaccination volumes and continued reimbursement pressure. The decrease was partly offset by improved retail gross margin and SG&A expense improvement, the company said.

The International segment had fourth quarter sales of $5.1 billion, a decrease of 6.6% from the year-ago quarter, including an adverse currency impact of 13.3%. Sales increased 6.7% on a constant currency basis, with Boots UK sales growing 6%, and the company's German wholesale business growing 6.8%.

Boots UK comparable pharmacy sales decreased 6.9% compared with the year-ago quarter, largely due to lower demand for COVID-19 services compared to the year-ago quarter. Boots UK comparable retail sales increased 15.2% compared to the year-ago quarter, with notable market share gains in personal care and health and wellness. Footfall improved around 20%, compared to the year-ago quarter. Boots.com continued to perform well, accounting for 11% of retail sales in the quarter compared to 6% pre-pandemic.

Gross profit decreased 7.3% compared to the year-ago quarter, including an adverse currency impact of 12.7%. Adjusted gross profit increased 5.4% on a constant currency basis, reflecting strong sales growth across all international markets. The increase was partially offset by lower demand for COVID-19 related services in the UK compared to the year-ago quarter and timing of National Health Service reimbursement, WBA said.

Operating loss in the fourth quarter was $672 million compared to operating income of $46 million in the year-ago quarter, as a result of the $783 million impairment charges in Boots UK. Adjusted operating income grew to $163 million, an increase of 31.3% on a constant currency basis.

The U.S. Healthcare segment had fourth quarter sales of $622 million. On a pro forma basis, this segment's businesses grew sales at a combined rate of 34% in the quarter. Shields grew 48%, driven by key contract wins, further expansion of existing partnerships and strong executional focus. VillageMD grew 31%, reflecting existing clinic growth and clinic footprint expansion.

Gross profit was a loss of $37 million and adjusted gross profit was a loss of $9 million. Shields gross profit, driven by further growth of existing partnerships and expanding margins, was more than offset by VillageMD expansion. As of the end of the fourth quarter, VillageMD had 334 total clinics open, an increase of 82 clinics compared to the year-ago quarter.

Operating loss was $338 million. Adjusted operating loss was $151 million. Adjusted operating loss excludes certain costs related to stock compensation expense and amortization of acquired intangible assets, WBA said.

For the full fiscal year 2023, WBA expects adjusted EPS of $4.45 to $4.65. Healthy core business growth of 8% to 10% in constant currency is expected to be more than offset by adverse currency movements of approximately 2% and by a headwind of 15% to 17% from lower COVID-19 vaccination volumes.

Additionally, the company is raising the U.S. Healthcare fiscal year 2025 sales target to $11 billion to $12 billion, from $9 billion to $10 billion previously. The segment is expected to achieve positive adjusted EBITDA by fiscal year 2024. The company reconfirmed its expectation to achieve low-teens adjusted EPS growth in fiscal year 2025.

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