Walgreens Boots Alliance Fiscal 2021 Second Quarter Results Exceed Expectations

Rhea-AI Summary

Walgreens Boots Alliance (WBA) reported second-quarter fiscal 2021 results, achieving $32.8 billion in sales, a 4.6% year-over-year increase. Net earnings rose 8.4% to $1.0 billion, while EPS increased 10.9% to $1.19. However, adjusted operating income dropped 22.5% to $1.2 billion, primarily due to COVID-19 impacts. The company raised its full-year EPS guidance to mid-to-high single-digit growth in constant currency. Significant growth was noted in the International segment, with $5.4 billion in sales, driven by a joint venture in Germany.

Positive

• Total sales increased 4.6% year-over-year to $32.8 billion.
• Net earnings rose 8.4% to $1.0 billion.
• EPS increased 10.9% to $1.19.
• Raised full-year EPS guidance to mid-to-high single-digit growth in constant currency.
• International segment sales surged 32.6% due to new joint venture.

Negative

• Adjusted operating income decreased 22.5% to $1.2 billion.
• Total adjusted net earnings decreased 10.2% in constant currency.
• Comparable retail sales declined 3.5% year-over-year.

Walgreens Boots Alliance, Inc. (Nasdaq: WBA) today announced financial results for the second quarter of fiscal 2021, which ended Feb. 28, 2021.

“Overall, we have achieved a good financial quarter with results well ahead of expectations, despite significant impacts from COVID-19, and we have raised our full-year EPS guidance. I am optimistic about our ability to drive sustainable, long-term value for our shareholders, while acknowledging that there is still work to be done to stabilize the base business,” said Brewer. “I will continue to review closely all our initiatives, strategies and opportunities to capitalize fully on the incredible potential in front of us. Our team will move swiftly and decisively to best serve the needs of our patients, customers and communities around the world, at this critical time and beyond.”

Financial Reporting Revisions for Pending Disposition of Alliance Healthcare Businesses

On Jan. 6, 2021, WBA announced the sale of the majority of the company's Alliance Healthcare business and a portion of the Retail Pharmacy International segment's businesses in Europe to AmerisourceBergen for $6.5 billion. Upon closing, the company will account for the transaction as a business disposition. Until closing, the related assets, liabilities and operating results will be reported as discontinued operations and are reflected as such in the company's second quarter financial results. As a result of the transaction, the company has reorganized its remaining businesses into two reportable operating segments, United States and International. Corporate-related overhead costs are recorded separately and included in consolidated continuing operations.

Overview of Second Quarter Results

WBA had fiscal 2021 second quarter sales from continuing operations of $32.8 billion, an increase of 4.6 percent from the year-ago quarter, and an increase of 3.5 percent on a constant currency basis¹, reflecting strong International segment growth, aided by the company's joint venture in Germany, and the United States segment.

Operating income from continuing operations was $832 million in the second quarter, compared with $1.1 billion in the same quarter a year ago. Adjusted operating income from continuing operations was $1.2 billion, a decrease of 22.5 percent on a reported currency basis and a decrease of 22.9 percent on a constant currency basis. The decreases reflect adverse COVID-19 impacts in the United States and International markets partly offset by cost savings related to the company's Transformational Cost Management Program.

Total net earnings attributable to WBA, including discontinued operations, increased 8.4 percent compared with the same quarter a year ago to $1.0 billion, reflecting a gain from the sale of a portion of the company's equity method investment in Option Care Health and a lower effective tax rate driven by discrete items, partly offset by lower operating income. Total adjusted net earnings in constant currency decreased 10.2 percent to $1.2 billion.

Total earnings per share² (EPS) in the second quarter increased 10.9 percent to $1.19, compared to $1.07 in the year-ago quarter. Total adjusted EPS decreased 7.5 percent to $1.40, down 8.2 percent on a constant currency basis.

Net earnings from continuing operations in the second quarter increased 6.3 percent compared with the same quarter a year ago to $922 million. Adjusted net earnings from continuing operations decreased 12.1 percent to $1.1 billion, down 12.8 percent on a constant currency basis, compared with the same quarter a year ago.

EPS from continuing operations increased 8.7 percent to $1.06. Adjusted EPS from continuing operations was $1.26 compared with $1.41 the same quarter a year ago, a decrease of 10.1 percent on a reported basis and a decrease of 10.8 percent on a constant currency basis.

Net cash provided by operating activities was $1.4 billion in the second quarter and free cash flow was $1.1 billion, a $5 million decrease compared to the year-ago quarter.

Overview of Fiscal 2021 Year-to-Date Results

Sales from continuing operations in the first six months of fiscal 2021 were $64.2 billion, an increase of 4.8 percent from the same period a year ago, and an increase of 4.0 percent on a constant currency basis¹.

Operating income from continuing operations in the first six months of fiscal 2021 was $298 million, a decrease of 85.5 percent from the same period a year ago mostly due to a charge in the first quarter from the company's equity earnings in AmerisourceBergen. Adjusted operating income from continuing operations in the first six months of the fiscal year was $2.4 billion, a decrease of 17.2 percent from the same period a year ago on a reported basis, down 17.6 percent on a constant currency basis.

For the first six months of fiscal 2021, total net earnings attributable to WBA, including discontinued operations, decreased 59.9 percent compared with the same period a year earlier, to $718 million. Total adjusted net earnings in constant currency decreased 12.2 percent to $2.3 billion.

Total EPS², including discontinued operations, decreased 58.8 percent to $0.83. Total adjusted EPS decreased 9.3 percent to $2.62, down 9.8 percent on a constant currency basis.

In the same time period, net earnings from continuing operations decreased 67.5 percent compared with the same period a year earlier, to $531 million. Adjusted net earnings from continuing operations decreased 13.7 percent compared with the same period a year ago, to $2.0 billion, down 14.3 percent on a constant currency basis.

EPS from continuing operations for the first six months of fiscal 2021 decreased 66.7 percent to $0.61, compared with the same period a year ago. Adjusted EPS from continuing operations was $2.36, a decrease of 11.4 percent on a reported basis and a decrease of 12.0 percent on a constant currency basis reflecting adverse COVID-19 impacts of 70 to 75 cents per share.

Net cash provided by operating activities was $2.6 billion in the first six months of fiscal 2021, an increase of $72 million from the same period last year, and free cash flow was $1.9 billion, an increase of $85 million from the same period a year ago.

Company Outlook

The company raised fiscal 2021 guidance to mid-to-high single digit growth in constant currency adjusted EPS from both total and continuing operations. Previous guidance was for low single-digit growth. The revised guidance reflects first-half performance above expectations and anticipated strong growth in the second half of the fiscal year. The situation continues to be fluid in the second half due to COVID-19.

Fighting the Pandemic

Walgreens and Boots UK pharmacists continue to play a critical role on the front lines of the pandemic, including the following examples through March to date.

• Walgreens has administered more than 8 million COVID-19 vaccinations including 4 million in March, and has provided some 5 million COVID-19 tests.
• Working closely with the National Health Service (NHS), Boots UK has supported more than 2.6 million COVID-19 tests at 66 sites and has launched 25 major vaccination hubs at Boots stores.

Selected Highlights of Progress on Strategic Priorities:

• Creating neighborhood health destinations around a more modern pharmacy
  • WBA established internally a technology-enabled healthcare startup, aimed at developing an integrated digital and physical consumer-centric healthcare delivery model.
  • Walgreens is on track to open 40 Village Medical at Walgreens locations by the end of the summer.

• Accelerating digitalization
  • Walgreens digitally initiated retail sales increased 78 percent in the second quarter compared with the year-ago quarter.
  • WBA made a majority investment in pharmacy automation solutions company iA to support its expansion and further development, aiming to improve pharmacy efficiency and free up pharmacists' time.
  • Walgreens Find Care platform use increased to nearly 70 million visits in the second quarter, mostly driven by COVID-19 testing and vaccinations.

• Transforming and restructuring the company's retail offering
  • MyWalgreens membership grew to 56 million, an increase of more than 40 percent since the start of the calendar year.
  • As part of its continued focus on creating alternative profit streams, Walgreens expanded its financial services business strategy, announcing it will launch a range of services including credit cards and a digital bank account with debit card access.
  • Walgreens launched nationwide rollout of same-day delivery with Instacart.
  • More than 4 million orders have been completed since the launch of Walgreens same-day pick-up.
  • Boots UK online sales doubled in the second quarter.
• Driving the Transformational Cost Management Program
  • The company is on track to deliver in excess of $2 billion in annual cost savings by fiscal 2022.

Business Segments

United States:

The United States segment had second quarter sales of $27.3 billion, an increase of 0.4 percent from the year-ago quarter, including the adverse impact of store optimization programs and the 2020 leap day. Comparable sales increased 2.0 percent from the year-ago quarter reflecting a 4.5 percent increase in comparable pharmacy sales and a 3.5 percent decline in comparable retail sales.

Within comparable sales, prescriptions filled in the second quarter decreased 1.1 percent from a year earlier, including a combined negative impact of 480 basis points from an exceptionally weak cough, cold and flu season and reduced doctor visits. Total prescriptions filled in the quarter decreased 2.8 percent, compared with the same quarter a year earlier. The number of prescriptions filled was 288.5 million, including immunizations, adjusted to 30-day equivalents. Pharmacy sales, which accounted for 74.9 percent of the segment's sales in the quarter, increased 3.0 percent compared with the year-ago quarter.

The segment’s retail prescription market share on a 30-day adjusted basis in the second quarter decreased approximately 30 basis points over the year-ago quarter to 20.9 percent, as reported by IQVIA, including the impact of store optimization programs.

Retail sales decreased 6.6 percent in the second quarter compared with the year-ago period, including adverse impacts from the store optimization programs and the 2020 leap day.

Comparable retail sales decreased 3.5 percent compared with the same quarter a year ago, reflecting the weaker cough, cold and flu season, which negatively impacted growth by 350 basis points. Comparable retail sales, excluding tobacco and e-cigarettes, decreased 2.7 percent. Within comparable retail sales, discretionary categories continued to decline, with beauty decreasing 8.8 percent. Excluding the impact of seasonal flu, sales in the health and wellness category increased 9.1 percent.

Gross profit decreased 2.2 percent compared with the same quarter a year ago and adjusted gross profit decreased 3.2 percent, in both cases primarily driven by pharmacy reimbursement pressure, retail volume and pharmacy volume, partly offset by pharmacy procurement, COVID-19 vaccines and testing, and retail margin.

Second quarter SG&A increased by 3.3 percent, and adjusted SG&A increased by 2.1 percent, reflecting COVID-19 related costs, including approximately $80 million of costs relating to roll-out of the vaccination program, as well as higher growth investments. These increases were partly offset by cost savings related to the Transformational Cost Management Program.

Operating income in the second quarter decreased 21.8 percent to $828 million from the year-ago quarter. Adjusted operating income decreased 18.2 percent, to $1.2 billion, reflecting COVID-19 related impacts and pharmacy reimbursement pressure, partly offset by pharmacy procurement and cost savings from the Transformational Cost Management Program.

International:

The International segment had second quarter sales of $5.4 billion, an increase of 32.6 percent from the year-ago quarter, including a favorable currency impact of 8.7 percent. Sales increased 23.9 percent on a constant currency basis, entirely due to the company's new joint venture in Germany, which was consolidated as of November 2020. Excluding incremental sales from the joint venture, International segment sales on a constant currency basis declined 9.9 percent, mainly due to a 17.8 percent decrease in Boots UK sales resulting from COVID-19 related impacts.

Boots UK comparable pharmacy sales increased 3.2 percent compared to the year-ago quarter, reflecting favorable timing of National Health Service (NHS) reimbursement, and stronger pharmacy services, which mitigated the impact of lower prescription volume.

Boots UK comparable retail sales decreased 17.9 percent compared to the year-ago quarter. COVID-19 continued to impact footfall, particularly in major high streets, and in train stations and airports. The recovery in footfall trends seen in early autumn was set back by the re-introduction of stricter restrictions beginning in November. However, Boots.com continued to perform very strongly with sales up 105 percent compared with the year-ago quarter, partially offsetting the reduced footfall.

Boots UK continued to gain market share in the beauty category, but restrictions due to the pandemic impacted all other categories, reflecting the shift in buying habits to one-stop grocery shopping.

Gross profit decreased 9.2 percent compared with the same quarter a year ago, including a favorable currency impact of 4.2 percent. Adjusted gross profit decreased 13.4 percent on a constant currency basis reflecting lower UK retail sales and pharmacy volumes, partly offset by the favorable timing of NHS reimbursement and by incremental gross profit associated with the Germany joint venture.

SG&A in the quarter decreased 7.2 percent from the prior year quarter to $973 million, including an adverse currency impact of 4.2 percent. On a constant currency basis, adjusted SG&A decreased 9.6 percent. Both decreases reflect short-term cost mitigation actions and cost savings from the Transformational Cost Management Program, partly offset by higher SG&A associated with the formation of the Germany joint venture.

Operating income decreased 24.0 percent to $106 million, including a favorable currency impact of 4.4 percent. On a constant currency basis, adjusted operating income decreased 31.8 percent, reflecting strict COVID-19 restrictions in the UK, partly offset by decisive cost management actions and strong Boots.com performance.

Conference Call

WBA will hold a conference call to discuss the second quarter results beginning at 8:30 a.m. Eastern time today, March 31, 2021. The conference call will be simulcast through the WBA investor relations website at: http://investor.walgreensbootsalliance.com. A replay of the conference call will be archived on the website for 12 months after the call.

The replay also will be available from 11:30 a.m. Eastern time, March 31 through April 7, 2021, by calling +1 800 585 8367 within the U.S. and Canada, or +1 416 621 4642 outside the U.S. and Canada, using replay code 1550649.

¹ Please see the “Supplemental Information (Unaudited) Regarding Non-GAAP Financial Measures” at the end of this press release for more detailed information regarding non-GAAP financial measures used, including all measures presented as "adjusted" or on a "constant currency" basis, and free cash flow.

² All references to net earnings are to net earnings attributable to WBA and all references to EPS are to diluted EPS attributable to WBA.

Cautionary Note Regarding Forward-Looking Statements: All statements in this release that are not historical including, without limitation, those regarding estimates of and goals for future operating, financial and tax performance and results (including those under "Company Outlook" and "Selected Highlights of Progress on Strategic Priorities” above), the expected execution and effect of our business strategies, the potential impacts on our business of the spread and effects of the COVID-19 pandemic, including the estimated impacts herein, the closing of the sale of our Alliance Healthcare business to AmerisourceBergen, our cost-savings and growth initiatives, pilot programs, strategic partnerships and initiatives, and restructuring activities and the amounts and timing of their expected impact and the delivery of annual cost savings are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Words such as “expect,” “likely,” “outlook,” “forecast,” “preliminary,” “pilot,” “would,” “could,” “should,” “can,” “will,” “project,” “intend,” “plan,” “goal,” “guidance,” “target,” “aim,” “continue,” “sustain,” “synergy,” “transform,” “accelerate,” “model,” “long-term,” “on track,” “on schedule,” “headwind,” “tailwind,” “believe,” “seek,” “estimate,” “anticipate,” “upcoming,” “to come,” “may,” “possible,” “assume,” 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, including, but not limited to, those relating to the spread and impacts of COVID-19, any mutations thereof or future pandemic and the acceptance and effectiveness of any therapies or vaccines related thereto, our ability to access therapies and vaccines on time and in quantities to meet consumer demand and our ability to process and distribute such therapies and vaccines efficiently, the impact of private and public third-party payers’ efforts to reduce prescription drug reimbursements, including the timing and amount of reimbursements for COVID-19 vaccinations, fluctuations in foreign currency exchange rates, the timing and magnitude of the impact of branded to generic drug conversions and changes in generic drug prices, our ability to realize synergies and achieve operating, financial and tax results in the amounts and at the times anticipated, the inherent risks, challenges and uncertainties associated with forecasting financial results of large, complex organizations in rapidly evolving industries, particularly over longer time periods, and during periods with increased volatility and uncertainties, our supply, commercial and framework arrangements and transactions with AmerisourceBergen and their possible effects, the risks associated with the company’s equity method investment in AmerisourceBergen, circumstances that could give rise to the termination, cross-termination or modification of any of our contractual obligations, the amount of costs, fees, expenses and charges incurred in connection with strategic transactions, whether the costs and charges associated with restructuring initiatives will exceed estimates, our ability to realize expected savings and benefits from cost-savings initiatives, restructuring activities and acquisitions and joint ventures in the amounts and at the times anticipated, the timing and amount of any impairment or other charges, the timing and severity of cough, cold and flu season, risks associated with the withdrawal of the United Kingdom from the European Union, risks relating to looting and vandalism in regions in which we operate and the scope and magnitude of any property damage, inventory loss or other adverse impacts, risks related to pilot programs and new business initiatives and ventures generally, including the risks that anticipated benefits may not be realized, changes in management’s plans and assumptions, the risks associated with governance and control matters, the ability to retain key personnel, changes in economic and business conditions generally or in particular markets in which we participate, changes in financial markets, credit ratings and interest rates, the risks relating to the terms, timing, and magnitude of any share repurchase activity, the risks associated with international business operations, including international trade policies, tariffs, including tariff negotiations between the United States and China, and relations, the risks associated with cybersecurity or privacy breaches related to customer information, changes in vendor, customer and payer relationships and terms, including changes in network participation and reimbursement terms and the associated impacts on volume and operating results, risks related to competition, including changes in market dynamics, participants, product and service offerings, retail formats and competitive positioning, risks associated with new business areas and activities, risks associated with acquisitions, divestitures, joint ventures and strategic investments, including those relating to the asset acquisition from Rite Aid and the sale of our Alliance Healthcare business to AmerisourceBergen, the risks associated with the integration of complex businesses, the impact of regulatory restrictions and outcomes of legal and regulatory matters, and risks associated with changes in laws, including those related to tax law changes, regulations or interpretations thereof. These and other risks, assumptions and uncertainties are described in Item 1A (Risk Factors) of our Annual Report on Form 10-K for the fiscal year ended August 31, 2020 and in other documents that we file or furnish with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should 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. Accordingly, you are cautioned not to place undue reliance on these 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 a global leader in retail and wholesale pharmacy, touching millions of lives every day through dispensing and distributing medicines, its convenient retail locations, digital platforms and health and beauty products. The company has more than 100 years of trusted health care heritage and innovation in community pharmacy and pharmaceutical wholesaling.

Including equity method investments, WBA has a presence in more than 25 countries, employs more than 450,000 people and has more than 21,000 stores.

WBA’s purpose is to help people across the world lead healthier and happier lives. The company is proud of its contributions to healthy communities, a healthy planet, an inclusive workplace and a sustainable marketplace. WBA is a Participant of the United Nations Global Compact and adheres to its principles-based approach to responsible business. WBA is included in FORTUNE's 2021 list of the World's Most Admired Companies.* This is the 28th consecutive year that WBA or its predecessor company, Walgreen Co., has been named to the list

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

*© 2021, Fortune Media IP Limited. Used under license.

(WBA-ER)

WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
(in millions, except per share amounts)
		Three months ended								Six months ended
		February 28, 2021				February 29, 2020				February 28, 2021				February 29, 2020
Sales		$	32,779			$	31,336			$	64,217			$	61,247
Cost of sales		25,998				24,318				50,806				47,453
Gross profit		6,781				7,017				13,411				13,794
Selling, general and administrative expenses		6,029				5,909				11,820				11,778
Equity earnings (loss) in AmerisourceBergen		80				28				(1,293		)		41
Operating income		832				1,136				298				2,057
Other income		251				28				313				64
Earnings before interest and tax		1,083				1,164				611				2,121
Interest expense, net		137				156				272				315
Earnings before tax		946				1,008				339				1,806
Income tax provision (benefit)		42				149				(165		)		172
Post tax earnings (loss) from other equity method investments		13				12				29				(1		)
Net earnings from continuing operations		918				870				532				1,633
Net earnings from discontinued operations		107				81				194				160
Net earnings		1,025				952				726				1,793
Net earnings (loss) attributable to noncontrolling interests - continuing operations		(4		)		3				1				(3		)
Net earnings attributable to noncontrolling interests - discontinued operations		3				2				7				5
Net earnings attributable to Walgreens Boots Alliance, Inc.		1,026				946				718				1,791
Net earnings attributable to Walgreens Boots Alliance, Inc.:
Continuing operations		$	922			$	867			$	531			$	1,636
Discontinued operations		104				79				187				155
Total		$	1,026			$	946			$	718			$	1,791
Basic earnings per common share:
Continuing operations		$	1.07			$	0.98			$	0.61			$	1.84
Discontinued operations		0.12				0.09				0.22				0.17
Total		$	1.19			$	1.07			$	0.83			$	2.02
Diluted earnings per common share:
Continuing operations		$	1.06			$	0.98			$	0.61			$	1.84
Discontinued operations		0.12				0.09				0.22				0.17
Total		$	1.19			$	1.07			$	0.83			$	2.01
Weighted average common shares outstanding:
Basic		864.2				884.5				864.7				887.9
Diluted		865.6				885.5				865.7				889.1

WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
(in millions)
		February 28, 2021				August 31, 2020
Assets
Current assets:
Cash and cash equivalents		$	1,030			$	469
Accounts receivable, net		4,878				4,110
Inventories		8,541				7,917
Other current assets		796

FAQ

What were the earnings results for WBA in Q2 FY 2021?

WBA reported Q2 FY 2021 earnings of $1.0 billion, with EPS of $1.19.

How did COVID-19 impact WBA's financial results?

COVID-19 negatively affected operating income, which decreased by 22.5%.

What is WBA's updated EPS guidance for the fiscal year?

WBA raised its full-year EPS guidance to mid-to-high single-digit growth in constant currency.

What drove the increase in WBA's International segment sales?

The increase was driven by a joint venture in Germany, contributing to a 32.6% rise in sales.