WBA reports Q2 results
In the face of a challenging environment, Walgreens Boots Alliance today reported that its second quarter sales increased 6.3% from the year-ago quarter to $37.1 billion, an increase of 5.7% on a constant currency basis, which the company said reflects sales growth across all segments.
"We're encouraged by our first quarter of U.S. Healthcare positive adjusted EBITDA and continued topline growth alongside another quarter of strong execution in pharmacy, as we look to re-energize and evolve its impact both at Walgreens and at large. As we continue to operate in a challenging retail environment, we are taking actions to focus on customer engagement and value,” said Tim Wentworth CEO of WBA.
Wentworth continued, “We remain confident in our goal of achieving $1 billion in cost savings this year. We are continuing to strategically review our portfolio over the next three months in an effort to ensure it drives growth and delivers value. Our team members, led by WBA’s new executive committee with a track record of operational excellence, are powering our progress as we map growth opportunities, aim to create long-term value across our businesses and execute the hard work to simplify and strengthen WBA.”
[Read more: WBA reports Q1 results]
WBA's second quarter operating loss was $13.2 billion compared to an operating income of $197 million in the year-ago quarter. Operating loss in the quarter includes a $12.4 billion non-cash impairment charge related to VillageMD goodwill, which resulted in a $5.8 billion charge attributable to WBA, net of tax and non-controlling interest. Operating loss also reflects a $455 million non-cash impairment charge related to certain long-lived assets in the U.S. Retail Pharmacy segment. Adjusted operating income was $900 million, a decrease of 26.5% on a constant currency basis reflecting lower sale-leaseback gains and softer U.S. retail performance. The decrease was partly offset by improved profitability in the U.S. Healthcare segment, WBA said.
The retailer's net loss in the second quarter was $5.9 billion compared to net earnings of $703 million in the year-ago quarter, reflecting non-cash impairment charges. Adjusted net earnings increased 3.5% to $1 billion, up 3% on a constant currency basis, as lower adjusted operating income was more than offset by the lower adjusted effective tax rate compared to the year-ago quarter due to the recognition of deferred tax assets in foreign jurisdictions.
Loss per share in the second quarter was $6.85 compared to earnings per share of 81 cents in the year-ago quarter. Adjusted EPS increased 3.4% to $1.20, reflecting an increase of 2.8% on a constant currency basis.
WBA reported that sales in the first six months of fiscal 2024 increased 8.1% from the year-ago period to $73.8 billion, an increase of 7.2% on a constant currency basis, reflecting growth across all segments, the company said.
Operating loss in the first six months of fiscal 2024 was $13.2 billion compared to an operating loss of $6 billion in the year-ago period. Operating loss reflects a $12.4 billion non-cash impairment charge related to VillageMD goodwill, which resulted in a $5.8 billion charge attributable to WBA, net of tax and non-controlling interest. Operating loss in the current period also reflects a $455 million non-cash impairment charge related to certain long-lived assets in the U.S. Retail Pharmacy segment. Prior year operating loss reflects a $6.8 billion pre-tax charge for opioid-related claims and litigation. Adjusted operating income was $1.6 billion, a decrease of 29.5% on a constant currency basis reflecting softer U.S. retail performance and lower sale-leaseback gains, partly offset by improved profitability in the U.S. Healthcare segment.
The retailer's net loss for the first six months of fiscal 2024 was $6 billion compared to net loss of $3 billion in the year-ago period, reflecting the non-cash impairment charges. Adjusted net earnings decreased 19.8% to $1.6 billion, down 20.4% on a constant currency basis, reflecting lower adjusted operating income partly offset by a lower adjusted effective tax rate due to the recognition of deferred tax assets in foreign jurisdictions.
Loss per share for the first six months of fiscal 2024 was $6.93 compared to loss per share of $3.50 in the year-ago period. Adjusted EPS** decreased 19.9% to $1.86, reflecting a decrease of 20.5% on a constant currency basis.
[Watch DSN: Walgreens’ Moodley shares current challenges of retail pharmacy space]
U.S. Retail Pharmacy segment:
The U.S. Retail Pharmacy segment had second quarter sales of $28.9 billion, an increase of 4.7% from the year-ago quarter. Comparable sales increased 4.8% from the year-ago quarter.
Pharmacy sales increased 8.2% compared to the year-ago quarter. Comparable pharmacy sales increased 8.7% in the quarter compared to the year-ago quarter, benefiting from higher branded drug inflation and strong execution in pharmacy services. Comparable prescriptions filled in the second quarter, adjusted to 30-day equivalents increased 2.7% from the year-ago quarter while comparable prescriptions excluding immunizations increased 2.9%. Total prescriptions filled in the quarter, including immunizations, adjusted to 30-day equivalents was 305.7 million, an increase of 2.6% versus the prior year quarter.
Retail sales decreased 4.5% and comparable retail sales decreased 4.3% compared with the year-ago quarter, reflecting a challenging retail environment, channel shift and a weaker respiratory season, including a 170 basis point impact from lower seasonal and general merchandise sales, a 90 basis point direct impact from softer cold cough flu trends, and a 40 basis point impact from adverse January weather.
Adjusted operating income decreased 29.5% to $752 million compared to $1.1 billion in the year-ago quarter, reflecting lower retail sales, lower sale-leaseback gains and higher shrink levels, partially offset by cost savings compared to the prior year quarter, the company said.
U.S. Healthcare segment:
The U.S. Healthcare segment had second quarter sales of $2.2 billion, an increase of 33.2% compared to the year-ago quarter, aided by the acquisition of Summit Health by VillageMD. On a pro forma basis, the segment's businesses grew sales at a combined rate of 14% in the quarter, led by VillageMD and Shields. VillageMD grew 20% on a pro forma basis, reflecting same clinic growth and additional full-risk lives under management. Shields grew 13%, driven by recent contract wins and further expansion of existing partnerships, the company said.
Operating loss was $13.1 billion, due to the non-cash impairment charge related to VillageMD goodwill. Adjusted operating loss, which excludes impairment charges, stock compensation expense, and amortization of acquired intangible assets, was $34 million compared to $159 million in the year-ago quarter.
Adjusted EBITDA of $17 million improved by $127 million versus the prior year quarter and represents the first quarter of positive adjusted EBITDA for the segment, driven by growth from VillageMD and Shields, and continued cost discipline.
International segment:
WBA reported that its International segment had second quarter sales of $6 billion, an increase of 6.6% from the year-ago quarter, including a favorable currency impact of 3.4%. Sales increased 3.2% on a constant currency basis, with the Germany wholesale business growing 5.3% and Boots UK sales growing 3%.
Boots UK comparable pharmacy sales increased 1.7% compared with the year-ago quarter. Boots UK comparable retail sales increased 5.9% compared to the year-ago quarter with growth across all categories, and increased total retail market share. Boots.com continued to perform strongly with sales growing 16.8% representing over 17% of Boots total retail sales.
Adjusted operating income decreased 30.3% to $245 million, a decrease of 32.4% on a constant currency basis compared with the year-ago quarter, entirely due to lapping real estate gains in the year-ago period. Underlying growth offset inflationary pressures.
Fiscal 2024 guidance:
WBA narrowed its fiscal 2024 adjusted EPS guidance to $3.20 to $3.35, reflecting a challenging retail environment in the U.S., early wind-down of sale-leaseback program and lower earnings due to Cencora share sales, offset by execution in pharmacy services and a lower adjusted effective tax rate.
The company is maintaining U.S. Healthcare adjusted EBITDA to be breakeven at the midpoint of the guidance range of ($50) million to $50 million.