DEERFIELD, Ill. — Walgreens Boots Alliance beat Wall Street’s expectations for second quarter sales and profits in one of its last reporting periods before being taken private by Sycamore Partners.
The company posted adjusted earnings per share of 63 cents for the period ended February 28, topping analysts’ projected 53 cents per share. Revenue of $38.59 billion exceeded the estimated $38 billion.
WBA withdrew its fiscal 2025 guidance in light of the pending takeover by Sycamore, which is valued at up to $23.7 billion and expected to close in the fourth quarter. In January, the company forecast full-year adjusted earnings of $1.40 to $1.80 per share.
“Second quarter results reflect disciplined cost management and improvement in U.S. Healthcare, which were partially offset by weaker front-end results in U.S. Retail Pharmacy, while significant legal settlements resulted in continued negative free cash flow," said CEO Tim Wentworth. “We remain in the early stages of our turnaround plan, and continue to expect that meaningful value creation will take time, enhanced focus and balancing future cash needs with necessary investments to navigate a changing pharmacy and retail landscape.”
WBA posted a net loss in the quarter of $2.9 billion, down 51.7 percent from to a net loss of $5.9 billion in the year-ago quarter, reflecting non-cash impairment charges partly offset by $1.0 billion of after-tax gains on early settlement of variable prepaid forward derivatives related to the monetization of Cencora shares and gains on investments in BrightSpring.
Overview of Second Quarter Results
Sales increased 4.1 percent from the year-ago quarter, an increase of 4.7 percent on a constant currency basis, reflecting sales growth in the U.S. Retail Pharmacy and International segments.
Operating loss was $5.6 billion compared to an operating loss of $13.2 billion in the year-ago quarter. Operating loss in the current quarter includes a $3.0 billion non-cash impairment charge related to VillageMD goodwill and other long-lived assets, which resulted in a $1.9 billion charge attributable to WBA, net of tax and non-controlling interest, and a $2.3 billion non-cash impairment charge attributable to WBA, net of tax, primarily related to U.S. Retail Pharmacy goodwill.
Operating loss in the year-ago 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, and a $455 million non-cash impairment charge related to certain long-lived assets in the U.S. Retail Pharmacy segment.
Adjusted operating income was $785 million compared to $900 million in the year-ago quarter, reflecting lower U.S. retail sales in the current quarter and sale-leaseback gains in the year-ago quarter, partly offset by cost savings within U.S. Retail Pharmacy and growth in U.S. Healthcare.
Adjusted net earnings decreased 47.6 percent to $543 million, down 47.2 percent on a constant currency basis, reflecting an adjusted effective tax benefit in the year-ago quarter due to the recognition of deferred tax assets in foreign jurisdictions and lower adjusted operating income.
Loss per share was $3.30 compared to $6.85 in the year-ago quarter. Adjusted EPS was down 47.3 percent from $1.20 in the year-ago quarter.
Net cash used for operating activities was $199 million , a $438 million improvement compared with the year-ago quarter. Operating cash flow in the current quarter was negatively impacted by $969 million of legal payments primarily related to Everly and opioid-related settlements. In the year-ago quarter, operating cash flow was negatively impacted by $615 million in payments related to legal matters and a $379 million Boots Pension Plan Annuity premium. Free cash flow was negative $418 million, a $192 million improvement compared with the year-ago quarter primarily driven by improvements in working capital and a decrease in capital expenditures of $132 million, partly offset by higher legal payments.
Business Segments
U.S. Retail Pharmacy
The U.S. Retail Pharmacy segment had second quarter sales of $30.4 billion, an increase of 5.3 percent from the year-ago quarter. Comparable sales increased 8.2 percent from the year-ago quarter.
Pharmacy sales increased 8.9 percent and comparable pharmacy sales increased 12.2 percent in the quarter, each benefiting from higher branded drug inflation and prescription volume. Comparable 30-day equivalent prescriptions filled in the second quarter increased 3.4 percent from the year-ago quarter, while comparable prescriptions excluding immunizations increased 3.9 percent. Total 30-day equivalent prescriptions filled in the quarter, including immunizations, increased 1.2 percent to 309 million.
Retail sales decreased 5.5 percent and comparable retail sales decreased 2.8 percent from the year-ago quarter, driven by lower sales in discretionary categories including beauty, seasonal and general merchandise. Cough cold flu season negatively impacted retail sales by approximately 45 basis points compared to the year-ago quarter, an improvement compared to the fiscal first quarter.
Operating loss in the current quarter was $2.3 billion, including a $2.0 billion non-cash goodwill impairment charge, reflecting continued softness in U.S. retail sales, the impact of recent legal settlements and a higher discount rate.
Adjusted operating income decreased 35.2 percent to $487 million from $752 million in the year-ago quarter, reflecting lower retail sales in the current quarter and sale-leaseback gains in the year-ago quarter, partially offset by cost savings.
International
The International segment had second quarter sales of $6.1 billion, an increase of 0.6 percent from the year-ago quarter, including an adverse currency impact of 3.5 percent. Sales increased 4.1 percent on a constant currency basis, with the Germany wholesale business growing 7.2 percent and Boots UK sales growing 1.6 percent.
Boots UK comparable pharmacy sales increased 5.0 percent on a constant currency basis compared with the year-ago quarter. Boots UK comparable retail sales increased 5.1 percent on a constant currency basis compared to the year-ago quarter with growth across all categories. Boots.com sales grew 19.5 percent, or 20.4 percent on a constant currency basis, representing over 20 percent of Boots total retail sales.
Adjusted operating income decreased 4.7 percent to $234 million, a decrease of 2.5 percent on a constant currency basis compared with the year-ago quarter, reflecting cost inflation primarily driven by payroll, along with technology investments, partially offset by strong retail performance in Boots UK and market growth in Germany.
U.S. Healthcare
The U.S. Healthcare segment had second quarter sales of $2.2 billion, a decrease of $23 million, reflecting lower fee-for-service and risk-based revenue at VillageMD, including the impact of clinic closures, partially offset by growth in Shields and CareCentrix. VillageMD sales decreased 6.2 percent, CareCentrix sales increased 6.5 percent and Shields sales increased 29.7 percent.
Operating loss was $3.3 billion, reflecting the non-cash impairment charge related to VillageMD goodwill and other long-lived assets, driven by market indications of value received during the second quarter as part of the ongoing sale process for legacy Village Medical and updated management forecasts for VillageMD's calendar year 2025, which were lower than previous projections for certain businesses used in the valuation completed during the fourth quarter of fiscal 2024. As a result, future earnings and losses of VillageMD will be fully attributed to the Company. This impairment of VillageMD is based on its estimated fair value as of February 28, 2025, which is not necessarily representative of the price to be received in connection with any future sale transactions relating to VillageMD, if any such transactions should occur.
Adjusted operating income, which excludes impairment charges, certain costs related to stock compensation expense and amortization of acquired intangible assets, was $117 million compared to a loss of $34 million in the year-ago quarter.
Adjusted EBITDA of $158 million improved by $140 million versus the prior year quarter, reflecting improvement at VillageMD and growth at Shields.
