Walgreens Boots Alliance reports store, online sales bounce back in Q3

Operating income from continuing operations in the first nine months of fiscal 2022 increased 54.3% to $2.2 billion, compared with $1.4 billion in the same period a year ago.

Sandra Levy

6/30/2022

Sales at stores and online bounced back but demand for COVID-19 vaccines were down for Q3, according to Walgreens Boots Alliance, which announced financial results for the third quarter of fiscal 2022 ending May 31, 2022.

“WBA delivered strong execution across operating segments and against very robust growth last year. Third-quarter results were broadly in line with our expectations, demonstrating the resilience of our business through our deep community connections and relevance to consumers," said CEO Rosalind Brewer.

“Walgreens Health achieved 65% pro forma sales growth with progress on several fronts, including adding Buckeye Health Plan as a strategic partner, already exceeding our 2022 target for covered lives and launching our clinical trials business," she said. “With our decision to conclude the Boots strategic review, I firmly believe that our strategic actions are working to deliver long-term shareholder value."

WBA's Q3 sales from continuing operations decreased 4.2% from the year-ago quarter to $32.6 billion, a decrease of 2.8% on a constant currency basis. Sales growth at Walgreens and in the international segment, and sales contributions from the Walgreens Health segment were more than offset by a 720 basis point impact from the sales decline at AllianceRx Walgreens, the company said.

Third quarter operating loss from continuing operations was $320 million compared with operating income of $1.1 billion in the year-ago quarter. Operating loss in the quarter reflects a $683 million charge related to the opioid settlement with the state of Florida and higher costs related to the Transformational Cost Management Program.

Adjusted operating income from continuing operations was $1 billion, a decrease of 33.5% on a constant currency basis. The decline in both adjusted and operating income reflects a decrease in U.S. pharmacy operating results as it lapped prior-year peak COVID-19 vaccinations and growth investments in Walgreens Health. This decline was partly offset by improved retail contributions in both the United States and international segments, according to the company.

Net earnings from continuing operations decreased 73.8% to $289 million compared with $1.1 billion in the year-ago quarter. The decline reflects the opioid settlement with the state of Florida, a decrease in U.S. pharmacy operating results as it lapped prior-year peak COVID-19 vaccinations and growth investments in Walgreens Health. The decline was partly offset by a gain on the partial sale of the company's equity method investment in AmerisourceBergen and the favorable impact of a lower tax rate compared with the year-ago quarter, as well as improved retail contributions in both the U.S. and international segments, the company said.

Adjusted net earnings from continuing operations decreased 30.2% to $834 million, down 29.1% on a constant currency basis compared with the year-ago quarter.

EPS from continuing operations decreased 73.8% to 33 cents compared with EPS of $1.27 in the year-ago quarter. Adjusted EPS from continuing operations was 96 cents, a decrease of 30% on a reported basis and a decrease of 28.9% on a constant currency basis.

Net cash provided by operating activities was $1.6 billion in the third quarter and free cash flow was $1.3 billion, a $187 million decrease in free cash flow compared with the year-ago quarter driven primarily by lower U.S. operating income, reduced volume from the AllianceRx Walgreens business and increased capital expenditures in growth initiatives. The decrease was partly offset by working capital.

Sales from continuing operations in the first nine months of fiscal 2022 were $100.3 billion, an increase of 2% from the same period a year ago, and an increase of 2.7% on a constant currency basis, reflecting comparable sales growth at Walgreens and in the international segment, and contributions from Walgreens Health acquisitions. This increase was partly offset by a decline in sales at AllianceRx Walgreens, according to the company.

Operating income from continuing operations in the first nine months of fiscal 2022 increased 54.3% to $2.2 billion compared with $1.4 billion in the same period a year ago. This reflects a $1.5 billion charge to the company's equity earnings from AmerisourceBergen in the prior fiscal year, partly offset by a $683 million charge related to the opioid settlement with the state of Florida in the current quarter.

Adjusted operating income from continuing operations in the first nine months of the fiscal year was $4.4 billion, an increase of 13.1% from the same period a year ago on a reported basis, and up 13.7% on a constant currency basis. The increase reflects adjusted gross profit growth across both pharmacy and retail in the U.S., and a continued rebound in international segment sales and profitability, partly offset by growth investments in Walgreens Health, the company said.

For the first nine months of fiscal 2022, net earnings from continuing operations increased by $3.1 billion compared with the same period a year earlier to $4.8 billion, 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, as well as 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 the charge related to the Florida opioid settlement in the current quarter. Adjusted net earnings from continuing operations increased 13.3% to $3.7 billion, up 13.9% on a constant currency basis.

EPS from continuing operations for the first nine months of fiscal 2022 increased from $3.60 to $5.49, compared with the same period a year ago. Adjusted EPS from continuing operations was $4.23, an increase of 13.3% from the same period a year ago on a reported basis, and an increase of 13.9% on a constant currency basis.

Walgreens also reported U.S. retail comparable sales growth of 1.4% or 2.4% excluding tobacco.

Additionally, Walgreens had U.S. digital sales growth of 25% in the third quarter, on top of 95% in the year-ago period, driven by 2.8 million same-day pickup orders, the company said.

The U.S. segment had third-quarter sales of $26.7 billion, a decrease of 7.1% from the year-ago quarter, driven by a decline in the AllianceRx Walgreens business. Comparable sales increased 1.8% from the year-ago quarter.

Pharmacy sales decreased 9.7% compared with the year-ago quarter, negatively impacted by an 11 percentage point headwind from the AllianceRx Walgreens business. Comparable pharmacy sales increased 2% in the quarter compared with a year ago. Comparable prescriptions filled decreased 1.8%. Excluding immunizations, comparable prescriptions increased 2.1%. Total prescriptions filled in the quarter decreased 2.5% to 304 million, including immunizations, adjusted to 30-day equivalents.

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Retail sales increased 1% and comparable retail sales increased 1.4% compared with the year-ago quarter. Excluding tobacco and e-cigarettes, comparable retail sales increased 2.4%. The increase reflects strong growth in health and wellness, which increased by 7.9% aided by at-home COVID-19 tests and cough-cold flu, along with a 2.6% increase in personal care, partly offset by beauty, and consumables and general merchandise, which decreased by .4% and 1.9%, respectively. Consumables and general merchandise lapped strong sales in COVID-19-related items and were impacted by the planned decline in tobacco.

Gross profit decreased 9.8% to $5.5 billion compared with $6.1 billion in the year-ago quarter. Adjusted gross profit decreased 9.6% to $5.6 billion compared with the year-ago quarter, reflecting a decline in pharmacy results as it lapped prior-year peak COVID-19 vaccinations, partly offset by positive contributions from retail performance.

Operating loss in the third quarter decreased to $90 million compared with operating income of $1.2 billion in the year-ago quarter reflecting the opioid settlement with the state of Florida and higher Transformational Cost Management Program costs. Adjusted operating income decreased 34.4% to $966 million compared with $1.5 billion in the year-ago quarter reflecting strong prior period results, which included peak COVID-19 vaccination volumes, with positive contributions from growth at retail in the current period.

The company also reported that its international segment had third-quarter sales of $5.3 billion, an increase of .3% from the year-ago quarter, including an adverse currency impact of 9%. Sales increased 9.3% on a constant currency basis, with Boots UK sales growing 13.5%, and the company’s German wholesale business growing 6.8%.

Boots UK comparable pharmacy sales decreased .4% compared with the year-ago quarter. Growth in comparable National Health Service volumes was more than offset by favorable timing on NHS reimbursement in the year-ago quarter. Boots UK comparable retail sales increased 24% compared with the year-ago quarter, with market share gains across all categories led by beauty. Footfall improved compared to the year-ago quarter; however, traffic remains below pre-COVID-19 levels. Boots.com continued to perform well, accounting for over 13% of retail sales in the quarter compared to 6% pre-pandemic.

The international segment's gross profit increased 3.2% compared with the same quarter a year ago, including an adverse currency impact of 8%. Adjusted gross profit increased 11.3% on a constant currency basis, reflecting strong sales growth in the U.K.

The international segment's operating income increased to $100 million compared with $36 million in the year-ago quarter. Operating income was negatively impacted by 36.9 percentage points ($13 million) as a result of currency translation. Adjusted operating income grew strongly to $174 million, more than doubling the year-ago quarter on a constant currency basis.

Lastly, the company said that it is maintaining its full year adjusted EPS guidance of low single-digit growth, as year-to-date performance is tracking broadly in line with expectations.

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