Second quarter operational results in line with expectations, U.S. Healthcare achieved adjusted EBITDA profitability, narrowing full-year adjusted EPS guidance range

Second quarter financial highlights

• Second quarter loss per share* was $6.85 compared to earnings per share of $0.81 in the year-ago quarter; Second quarter results included a $5.8 billion after-tax non-cash impairment charge related to VillageMD goodwill
• Adjusted earnings per share (EPS)** increased 3.4 percent to $1.20, up 2.8 percent on a constant currency basis reflecting lower adjusted effective tax rate** and improved profitability in U.S. Healthcare
• Second quarter sales increased 6.3 percent year-over-year to $37.1 billion, up 5.7 percent on a constant currency basis

Fiscal 2024 guidance

• Narrowing fiscal 2024 adjusted EPS** guidance to $3.20 to $3.35, reflecting 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**
• Maintaining U.S. Healthcare adjusted EBITDA** to be breakeven at the midpoint of the guidance range of ($50) million to $50 million

DEERFIELD, Ill.--(BUSINESS WIRE)--Walgreens Boots Alliance, Inc. (Nasdaq: WBA) today announced financial results for the second quarter of fiscal 2024, which ended February 29, 2024.

Chief Executive Officer Tim Wentworth said:

"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.

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.”

Overview of Second Quarter Results

WBA second quarter sales increased 6.3 percent from the year-ago quarter to $37.1 billion, an increase of 5.7 percent on a constant currency basis, reflecting sales growth across all segments.

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 percent on a constant currency basis reflecting lower sale-leaseback gains and softer U.S. retail performance, partly offset by improved profitability in the U.S. Healthcare segment.

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 percent to $1.0 billion, up 3.0 percent 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 $0.81 in the year-ago quarter. Adjusted EPS** increased 3.4 percent to $1.20, reflecting an increase of 2.8 percent on a constant currency basis.

Net cash used for operating activities was $637 million in the second quarter. Operating cash flow was negatively impacted by $615 million in payments related to legal matters, a $379 million Boots Pension Plan Annuity premium, and underlying seasonality. Year-over-year cash flow was negatively impacted by payments related to legal matters, phasing of working capital, and lower earnings. Free cash flow** was negative $610 million, a $1.3 billion decrease compared with the year-ago quarter. Capital expenditures decreased by $146 million compared to the year-ago quarter.

Overview of Fiscal 2024 Year-to-Date Results

Sales in the first six months of fiscal 2024 increased 8.1 percent from the year-ago period to $73.8 billion, an increase of 7.2 percent on a constant currency basis, reflecting growth across all segments.

Operating loss in the first six months of fiscal 2024 was $13.2 billion compared to an operating loss of $6.0 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 percent 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.

Net loss for the first six months of fiscal 2024 was $6.0 billion compared to net loss of $3.0 billion in the year-ago period, reflecting the non-cash impairment charges. Adjusted net earnings** decreased 19.8 percent to $1.6 billion, down 20.4 percent 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 percent to $1.86, reflecting a decrease of 20.5 percent on a constant currency basis.

Net cash used for operating activities was negative $918 million in the first six months of fiscal 2024. Operating cash flow was negatively impacted by $699 million in payments related to legal matters, a $379 million Boots Pension Plan Annuity premium, and underlying seasonality. Year-over-year cash flow was adversely impacted by phasing of working capital, lower earnings, and payments related to legal matters. Free cash flow** was negative $1.4 billion, a $2.0 billion decrease compared with the year-ago period. Capital expenditures decreased by $250 million compared to the year-ago period.

Business Segments

U.S. Retail Pharmacy

The U.S. Retail Pharmacy segment had second quarter sales of $28.9 billion, an increase of 4.7 percent from the year-ago quarter. Comparable sales increased 4.8 percent from the year-ago quarter.

Pharmacy sales increased 8.2 percent compared to the year-ago quarter. Comparable pharmacy sales increased 8.7 percent 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 percent from the year-ago quarter while comparable prescriptions excluding immunizations increased 2.9 percent. Total prescriptions filled in the quarter, including immunizations, adjusted to 30-day equivalents was 305.7 million, an increase of 2.6 percent versus the prior year quarter.

Retail sales decreased 4.5 percent and comparable retail sales decreased 4.3 percent 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 percent 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.

International

The International segment had second quarter sales of $6.0 billion, an increase of 6.6 percent from the year-ago quarter, including a favorable currency impact of 3.4 percent. Sales increased 3.2 percent on a constant currency basis, with the Germany wholesale business growing 5.3 percent and Boots UK sales growing 3.0 percent.

Boots UK comparable pharmacy sales increased 1.7 percent compared with the year-ago quarter. Boots UK comparable retail sales increased 5.9 percent 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 percent representing over 17 percent of Boots total retail sales.

Adjusted operating income decreased 30.3 percent to $245 million, a decrease of 32.4 percent 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.

U.S. Healthcare

The U.S. Healthcare segment had second quarter sales of $2.2 billion, an increase of 33.2 percent 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 percent in the quarter, led by VillageMD and Shields. VillageMD grew 20 percent on a pro forma basis, reflecting same clinic growth and additional full-risk lives under management. Shields grew 13 percent, driven by recent contract wins and further expansion of existing partnerships.

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.

Conference Call

WBA will hold a conference call to discuss the second quarter results beginning at 8:30 a.m. Eastern time today, March 28, 2024. A live simulcast as well as related presentation materials will be available through WBA’s investor relations website at: https://investor.walgreensbootsalliance.com. A replay of the conference will be archived on the website for at least 12 months after the event.

*All references to net earnings or net loss are to net earnings or net loss attributable to WBA, and all references to EPS are to diluted EPS attributable to WBA.

**"Adjusted," "constant currency" and free cash flow amounts are non-GAAP financial measures. Measures identified as "comparable" constitute key performance indicators. See the appendix to this release for a discussion of non-GAAP financial measures, including a reconciliation to the most closely correlated GAAP measure, and key performance indicators.

*** The Company uses Adjusted operating income (loss) as its principal measure of segment performance as it enhances the Company’s ability to compare past financial performance with current performance and analyze underlying segment performance and trends. The consolidated WBA measure is not determined in accordance with GAAP and should not be considered a substitute for, or superior to, the most directly comparable GAAP measure, consolidated operating income. See the appendix to this release for a discussion of non-GAAP financial measures, including a reconciliation to the most closely correlated GAAP measure.

Cautionary Note Regarding Forward-Looking Statements: This release contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These include, without limitation, estimates of and goals for future operating, financial and tax performance and results, including the impact of opioid related claims and litigation settlements, our fiscal year 2024 guidance, outlook and targets and related assumptions and drivers, as well as forward-looking statements concerning the expected execution and effect of our business strategies, including the potential impacts on our business of COVID-19, the impact of adverse global macroeconomic conditions caused by factors including, among others, inflation, high interest rates, labor shortages, supply chain disruptions and pandemics like COVID-19 on our operations and financial results, the financial performance of our equity method investees, including Cencora, the amount of our goodwill impairment charge (which is based in part on estimates of future performance), the influence of certain holidays and seasonality, our cost-savings and growth initiatives, including statements relating to our expected cost savings under our Transformational Cost Management Program and expansion and future operating and financial results of our U.S. Healthcare segment, including our long-term sales targets and profitability expectations. All statements in the future tense and all statements accompanied by words such as “expect,” “outlook,” “forecast,” “would,” “could,” “should,” “can,” “will,” “project,” “intend,” “plan,” “goal,” “guidance,” “target,” “aim,” continue,” “transform,” “accelerate,” “model,” “long-term,” “believe,” “seek,” “estimate,” “anticipate,” “may,” “possible,” “assume,” "potential," "preliminary," and variations of such words and similar expressions are intended to identify such forward-looking statements.

These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions, known or unknown, that could cause actual results to vary materially from those indicated or anticipated.

These risks, assumptions and uncertainties include those described in Item 1A (Risk Factors) of our Form 10-K for the fiscal year ended August 31, 2023, as amended, and in other documents that we file or furnish with the Securities and Exchange Commission (the "SEC"). If one or more of these risks or uncertainties materializes, or if underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. All forward-looking statements we make or that are made on our behalf are qualified by these cautionary statements. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made.

We do not undertake, and expressly disclaim, any duty or obligation to update publicly any forward-looking statement after the date of this release, whether as a result of new information, future events, changes in assumptions or otherwise.

Please refer to the supplemental information presented below for reconciliations of the non-GAAP financial measures used in this release to the most comparable GAAP financial measure and related disclosures.

Notes to Editors:

About Walgreens Boots Alliance

Walgreens Boots Alliance (Nasdaq: WBA) is an integrated healthcare, pharmacy and retail leader serving millions of customers and patients every day, with a 170-year heritage of caring for communities.

A trusted, global innovator in retail pharmacy with approximately 12,500 locations across the U.S., Europe and Latin America, WBA plays a critical role in the healthcare ecosystem. The Company is reimagining local healthcare and well-being for all as part of its purpose – to create more joyful lives through better health. Through dispensing medicines, improving access to a wide range of health services, providing high quality health and beauty products and offering anytime, anywhere convenience across its digital platforms, WBA is shaping the future of healthcare.

WBA employs approximately 330,000 people and has a presence in eight countries through its portfolio of consumer brands: Walgreens, Boots, Duane Reade, the No7 Beauty Company, and Benavides in Mexico. Additionally, WBA has a portfolio of healthcare-focused investments located in several countries, including China and the U.S.

The Company is proud of its contributions to healthy communities, a healthy planet, an inclusive workplace and a sustainable marketplace. WBA has been recognized for its commitment to being an inclusive workplace. In fiscal 2023, the Company received a score of 100 from the Human Rights Campaign’s Corporate Equality Index, scored 100 percent on the Disability Equality Index for disability inclusion and was named Disability:IN’s 2023 Employer of the Year. In addition, WBA has been recognized for its commitment to operating sustainably as the company is an index component of the Dow Jones Sustainability Indices (DJSI).

More Company information is available at www.walgreensbootsalliance.com.

(WBA-ER)