Table of Contents
DEERFIELD, Ill. — Walgreens Boots Alliance Inc.’s first quarter profits beat analysts’ projections handily.
Stefano Pessina
The company’s adjusted earnings per share of $1.22 topped the forecast of $1.03. Revenue for the period ended November 30 rose 5.7% to $36.3 billion, driven by gains in U.S. store sales and wholesaling.
“Our first quarter results exceeded expectations as we continue to deliver on our strategic priorities,” executive vice chairman and CEO Stefano Pessina said Thursday. “As announced yesterday we have taken a major step forward in our transformation; we are divesting our pharmaceutical wholesale business with plans to use the proceeds to accelerate our investments in healthcare. While the business environment remains challenging, we are rising to the occasion with agility and discipline and we are confident in our outlook for adjusted EPS for the fiscal year.
“Our role in the healthcare system has never been more important, as the communities we serve continue to turn to our trusted brands and expert pharmacists. I am so proud of our teams and the historic and critical role they are playing to help the world emerge from the pandemic, administering COVID-19 vaccinations to frontline healthcare workers and vulnerable members of our society.”
WBA had an operating loss of $440 million in the first quarter, compared to operating income of $1 billion in the year-ago period, entirely due to a $1.5 billion charge from equity earnings in AmerisourceBergen Corp. Adjusted operating income was $1.3 billion, a decrease of 9.9 percent and a decrease of 10.1 percent on a constant currency basis.
Net loss was $308 million compared with net profit of $845 million in the same quarter a year ago. The loss was entirely due to the AmerisourceBergen charge. Loss per share was $0.36, compared to earnings per share (EPS) of $0.95 a year ago.
Adjusted net earnings decreased 13.9 percent to $1.1 billion, down 14.3 percent on a constant currency basis, The adjusted EPS of $1.22 was down 11.2 percent on a reported basis and down 11.6 percent on a constant currency basis, reflecting an estimated adverse COVID-19 impact of $0.26 to $0.30 per share.
Net cash provided by operating activities was $1.2 billion and free cash flow was $763 million, an increase of 13 percent. The company maintained fiscal 2021 guidance of low single-digit growth in adjusted earnings per share at constant currency rates, with the profile skewed to opportunity:
- The first quarter exceeded expectations, reflecting strength in Boots UK and Boots Opticians.
- While the second quarter is expected to see higher adverse impacts from COVID-19 (including the weaker cough, cold and flu season), the company anticipates first-half fiscal 2021 adjusted EPS to be broadly in line with prior expectations.
- On a full-year basis, the opportunity from the distribution of vaccinations is likely to be offset by COVID-19 related lock-downs and restrictions, and by increased growth investments.
Selected highlights of the company’s recent progress on strategic initiatives _ creating neighborhood health destinations around a more modern pharmacy, accelerating digitalization, transforming and restructuring the retail offering and transformational cost management _ include the following:
- Walgreens pharmacists are playing a key, expanded role in fighting the COVID-19 pandemic.
- Since COVID-19 testing began, Walgreens has administered more than 2.8 million tests.
- Working with federal and state governments, Walgreens is vaccinating residents and staff at more than 35,000 long-term care facilities in 49 states.
- Walgreens launched myWalgreens, a complete reinvention of its customer loyalty program.
- Walgreens is now offering the fastest same-day retail pick-up in the U.S., with orders available in as little as 30 minutes. More than 1.7 million pick-up orders have been completed since launch in November.
- Walgreens announced an acceleration of its investment in VillageMD and boosted the rollout of Village Medical at Walgreens full-service primary care clinics.
- Boots.com significantly expanded capacity and sales doubled from the year-ago quarter, outperforming the market.
Retail Pharmacy USA had first quarter sales of $27.2 billion, an increase of 3.9 percent from the year-ago quarter, including the impact of previously announced store optimization programs. Same-store sales increased 3.7 percent, reflecting a 5 percent increase in comparable pharmacy sales and a 0.4 percent growth in comparable retail sales. The estimated adverse COVID-19 impact on comparable sales included lower foot traffic in stores, weak retail cough, cold and flu sales, lower seasonal flu scripts and reduced new-to-therapy scripts.
In comparable stores, prescriptions filled in the first quarter increased 2.7 percent from a year earlier, including an estimated negative impact of 210 basis points from COVID-19. Total prescriptions filled in the quarter increased 1.1 percent. The number of prescriptions filled was 297.3 million, including immunizations, adjusted to 30-day equivalents. Pharmacy sales, which accounted for 76.8 percent of the division’s sales in the quarter, increased 5.9 percent compared with the year-ago quarter. Comparable pharmacy sales increased 5.0 percent.
The division’s retail prescription market share on a 30-day adjusted basis in the first quarter decreased approximately 15 basis points over the year-ago quarter to 20.7 percent, as reported by IQVIA, an improvement over the decline in the fourth quarter and entirely driven by store optimization programs.
Front-end sales decreased 2.2 percent in the first quarter compared with the year-ago period, including the impact of the store optimization programs. Same-store front-end sales grew 0.4 percent, held back by the significantly weaker cough, cold and flu season, which had an adverse impact of 150 basis points. Comparable front-end sales, excluding tobacco and e-cigarettes, increased 1.9 percent. Within comparable retail store sales, a 13.1 percent decrease in beauty category sales and a 1.3 percent decrease in personal care category sales were partially offset by a 4.1 percent increase in health and wellness category sales. Excluding the impact of the weaker cough, cold and flu season, sales in the health and wellness category increased by 11.6 percent.
Gross profit decreased 1.3 percent and adjusted gross profit decreased 1.8 percent, in both cases primarily due to pharmacy reimbursement pressure, partly offset by pharmacy procurement savings and a higher retail gross margin.
First quarter SG&A decreased by 0.4 percent, primarily due to non-recurring costs related to the acquisition of Rite Aid stores in the year-ago quarter, and adjusted SG&A increased by 1.4 percent, as cost savings from the Transformational Cost Management Program partly offset higher growth investments and COVID-19 related costs of $83 million.
Operating income in the first quarter decreased 6.6 percent to $792, due to pharmacy reimbursement pressure and adverse impact from COVID-19, partly offset by savings from the Transformational Cost Management Program and non-recurring acquisition-related costs related to Rite Aid stores in the year-ago quarter. Adjusted operating income decreased 14.4 percent, to $989 million, due to pharmacy reimbursement pressure and adverse impacts from COVID-19, partly offset by savings from the TransformationalCost Management Program.
Retail Pharmacy International had first-quarter sales of $2.6 billion, a decrease of 6.2 percent, including a favorable currency impact of 1.9 percent. Sales decreased 8.2 percent on a constant currency basis, mainly due to an 11.5 percent decrease in Boots UK sales resulting from COVID-19 related impacts.
Boots UK comparable pharmacy sales increased 2.5 percent compared to the year-ago quarter, reflecting favorable timing of National Health System (NHS) reimbursement, which mitigated the impact of lower prescription volume and reduced demand for pharmacy services during the pandemic.
Boots UK comparable front-end sales decreased 9.1 percent compared to the year-ago quarter. COVID-19 continued to impact footfall, particularly in major high street, train station and airport stores. The ongoing recovery in footfall trends in September and October was set back by the reintroduction of stricter restrictions for the month of November. However, Boots.com continued to perform very strongly with sales up 106 percent compared with the year-ago quarter, partially offsetting the reduced footfall.
Boots’ UK market share was lower in all categories except beauty, as the pandemic continued to impact heavily on buying habits and consumers temporarily shifted purchasing to one-stop grocery shopping.
Gross profit decreased 9.0 percent, including a favorable currency impact of 2.3 percent. Adjusted gross profit decreased 11.5 percent, on a constant currency basis, reflecting lower UK retail sales and higher fulfillment costs, partly offset by the favorable timing of NHS reimbursement.
SG&A in the quarter decreased 8.4 percent to $928 million, including an adverse currency impact of 2.0 percent. On a constant currency basis, adjusted SG&A decreased 12.5 percent. The decreases in SG&A and adjusted SG&A both reflect short-term cost mitigation actions and cost savings from the Transformational Cost Management Program.
Operating income decreased 22.7 percent to $34 million, reflecting increased investment in the Transformational Cost Management Program. Adjusted operating income was $84 million, an increase of 6.4 percent. On a constant currency basis, adjusted operating income increased 0.6 percent, as decisive cost management actions and strong Boots.com performance fully mitigated the impact of COVID-19.
Pharmaceutical Wholesale had first quarter sales of $7.1 billion, an increase of 18.6 percent. On a constant currency basis, sales increased 16.3 percent, including results of the company’s new joint venture in Germany, which were consolidated as of November.
The division had an operating loss of $1.3 billion in the first quarter entirely due to a loss of $1.4 billion related to the equity method investment in AmerisourceBergen. This compared with operating income of $122 million in the year-ago quarter, which included $13 million from the equity earnings in AmerisourceBergen.
Adjusted operating income increased 6.7 percent to $244 million, up 7.4 percent on a constant currency basis, reflecting strong sales growth and a higher contribution from AmerisourceBergen.
