Walgreens Boots Alliance Reports Fiscal Year 2019 Results in Line with Guidance

Company Making Progress on Strategic Priorities to Deliver Long-Term Growth, with sales increased 4.1 percent to $136.9 billion, up 5.8 percent on a constant currency basis.

Fiscal 2019 Walgreens Boots Alliance highlights, year-over-year

• Sales increased 4.1 percent to $136.9 billion, up 5.8 percent on a constant currency basis
• Operating income decreased 20.5 percent to $5.0 billion; Adjusted operating income decreased 9.6 percent to $6.9 billion, down 8.6 percent on a constant currency basis
• EPS decreased 14.6 percent to $4.31; Adjusted EPS decreased 0.5 percent to $5.99, up 0.5 percent on a constant currency basis

Fourth quarter highlights, year-over-year

• Sales increased 1.5 percent to $34.0 billion, up 2.6 percent on a constant currency basis
• Operating income decreased 37.0 percent to $878 million; Adjusted operating income decreased 11.9 percent to $1.6 billion, down 11.1 percent on a constant currency basis
• EPS decreased 51.4 percent to $0.75; Adjusted EPS decreased 3.7 percent to $1.43, down 2.9 percent on a constant currency basis

Transformational Cost Management Program

• Company raised its annual cost savings target from in excess of $1.5 billion to in excess of $1.8 billion by fiscal 2022

Fiscal 2020 guidance

• Company introduced guidance of roughly flat growth in fiscal 2020 adjusted EPS, on a constant currency basis

DEERFIELD, Ill.–(BUSINESS WIRE)–Walgreens Boots Alliance, Inc. (Nasdaq: WBA) today announced financial results for the fiscal year and fourth quarter that ended August 31, 2019.

Executive Vice Chairman and CEO Stefano Pessina said, “We are pleased to report fiscal 2019 results in line with our previously stated guidance despite a challenging operating environment. We are also making progress on our four strategic priorities, which we remain confident are positioning us to deliver long-term growth. While we still face headwinds, I am encouraged by the improvement in U.S. comparable sales performance in the second half of fiscal 2019 and our progress in managing costs in order to save to invest to grow. We are introducing guidance for fiscal 2020 adjusted earnings per share, which we expect will be roughly consistent with fiscal 2019 at constant currency rates – very much in line with our expectations.”

Overview of Fiscal Year Results

Fiscal 2019 net earnings attributable to Walgreens Boots Alliance decreased 20.7 percent to $4.0 billion, while net earnings per share¹ decreased 14.6 percent to $4.31, compared with the prior year.

Adjusted net earnings attributable to Walgreens Boots Alliance² in fiscal 2019 decreased 7.6 percent to $5.5 billion, down 6.7 percent on a constant currency basis, compared with the prior year. Adjusted earnings per share decreased 0.5 percent to $5.99, up 0.5 percent on a constant currency basis, compared with the prior year.

Sales increased 4.1 percent to $136.9 billion in fiscal 2019 compared with the prior year. On a constant currency basis, sales increased 5.8 percent.

Operating income in fiscal 2019 was $5.0 billion, a decrease of 20.5 percent from the prior year. Adjusted operating income was $6.9 billion, a decrease of 9.6 percent, and a decrease of 8.6 percent on a constant currency basis.

Net cash provided by operating activities was $5.6 billion in fiscal 2019, a decrease of $2.7 billion from fiscal 2018. Free cash flow was $3.9 billion, a decrease of $3.0 billion from fiscal 2018. These decreases primarily reflect cash flows relating to the integration of Rite Aid stores, non-recurring cash tax benefits in fiscal 2018, and transition tax payments, legal settlements and cash charges relating to the implementation of the Transformational Cost Management Program in fiscal 2019.

Overview of Fourth Quarter Results

Fiscal 2019 fourth quarter net earnings attributable to Walgreens Boots Alliance decreased 55.2 percent to $677 million compared with the same quarter a year ago, while net earnings per share¹ decreased 51.4 percent to $0.75 compared with the same quarter a year ago. These results reflect higher charges as the company accelerated its Transformational Cost Management Program.

Adjusted net earnings attributable to Walgreens Boots Alliance² decreased 11.3 percent to $1.3 billion, down 10.6 percent on a constant currency basis, compared with the same quarter a year ago. Adjusted earnings per share were $1.43, down 3.7 percent on a reported currency basis and down 2.9 percent on a constant currency basis, compared with the same quarter a year ago.

Sales in the fourth quarter were $34.0 billion, an increase of 1.5 percent from the year-ago quarter, and an increase of 2.6 percent on a constant currency basis.

Operating income was $878 million, a decrease of 37.0 percent from the same quarter a year ago. Adjusted operating income was $1.6 billion, a decrease of 11.9 percent from the same quarter a year ago, and a decrease of 11.1 percent on a constant currency basis.

Net cash provided by operating activities was $2.4 billion in the fourth quarter, a decrease of $439 million from the same quarter a year ago. Free cash flow was $1.9 billion, a decrease of $510 million versus the same quarter last year.

Company Outlook

The company today introduced guidance of roughly flat growth in fiscal 2020 adjusted earnings per share at constant currency rates, with a range of plus or minus 3 percent. Excluding the impact of lower fiscal 2019 bonus payout, this expected performance represents a year-over-year increase in the mid-single digits.

Progress on Strategic Priorities

During fiscal 2019, the company made progress on its four strategic priorities: accelerating digitalization; transforming and restructuring retail offering; creating neighborhood health destinations; and the Transformational Cost Management Program.

Selected highlights include the following:

• Walgreens Boots Alliance announced its strategic partnership with Microsoft to deliver innovative platforms that enable next-generation health networks and care management solutions;
• Walgreens expanded its Find Care platform with new strategic partners and offerings;
• Walgreens and Kroger Co. expanded their store-in-store pilot and the innovative Kroger Express concept;
• Walgreens and LabCorp expanded their collaboration, with at least 600 LabCorp patient service centers at Walgreens stores planned;
• Through numerous pilots, Walgreens is teaming up with U.S. national and regional partners in select locations to provide comprehensive health care services built around a more modern pharmacy;
• The company made an investment in specialty pharmacy provider Shields Health Solutions; and
• Boots UK digitalized the Boots Advantage Card, with an app now integrated across all main customer platforms, and Boots.com sales increased 14.4 percent in fiscal 2019 and 18.4 percent in the fourth quarter.

The Transformational Cost Management Program is on track and today the company announced it is increasing targeted annual savings from the program from in excess of $1.5 billion to in excess of $1.8 billion, by fiscal 2022.

Business Divisions

Retail Pharmacy USA:

Retail Pharmacy USA had fourth quarter sales of $26.0 billion, an increase of 2.1 percent over the year-ago quarter. Excluding the impact of store optimization following the acquisition of Rite Aid stores, organic sales growth was 2.9 percent in the quarter. Sales in comparable stores increased 3.4 percent compared with the same quarter a year ago.

Pharmacy sales, which accounted for 75.1 percent of the division’s sales in the quarter, increased 4.2 percent compared with the year-ago quarter, primarily due to higher brand inflation and prescription volume, and strong growth in central specialty. Comparable pharmacy sales increased 5.4 percent. The division filled 283 million prescriptions (including immunizations) adjusted to 30-day equivalents in the quarter, an increase of 1.2 percent over the year-ago quarter. Prescriptions filled in comparable stores adjusted to 30-day equivalents increased 3.3 percent compared with the same quarter a year ago.

Retail prescription market share on a 30-day adjusted basis in the fourth quarter decreased approximately 55 basis points over the year-ago quarter to 21.0 percent, as reported by IQVIA³. This decrease is primarily due to store optimization. Retail prescription market share in fiscal 2019 expanded by 35 basis points to 21.3 percent, the division’s highest ever annual share, compared with 20.9 percent in fiscal 2018.

Retail sales decreased 3.9 percent in the fourth quarter compared with the year-ago period, including the impact of store optimization following the acquisition of Rite Aid stores. Comparable retail sales decreased 1.2 percent in the quarter, entirely due to continued de-emphasis of tobacco.

Gross profit decreased 3.9 percent compared with the same quarter a year ago and includes a decrease of 2.4 percentage points related to LIFO and a decrease in adjusted gross profit. Adjusted gross profit decreased 1.1 percent, reflecting a decrease in retail, partially offset by pharmacy.

Fourth quarter selling, general and administrative expenses (SG&A) as a percentage of sales improved 0.1 percentage point compared with the year-ago quarter due to lower legal and regulatory accruals and settlements, partially offset by costs incurred under the Transformational Cost Management Program. Adjusted SG&A as a percentage of sales remained unchanged compared to the same quarter a year ago. The fourth quarter of 2019 was impacted by a one-time benefit of $69 million in the prior year associated with a previously disclosed adjustment related to certain legal and regulatory accruals and settlements. The quarter also included $53 million of costs related to previously announced labor, store and digital investments.

Operating income in the fourth quarter decreased 30.3 percent from the year-ago quarter to $700 million, reflecting lower gross margin, and includes a 16.1 percent impact from charges incurred under the Transformational Cost Management Program. Adjusted operating income in the fourth quarter decreased 12.2 percent from the year-ago quarter to $1.1 billion. Adjusted operating income includes an adverse impact of 5.3 percentage points from the prior year legal and regulatory accruals and settlements adjustment mentioned above, as well as 4.1 percentage points from the store, labor and digital investments.

Retail Pharmacy International:

Retail Pharmacy International had fourth quarter sales of $2.7 billion, a decrease of 6.3 percent from the year-ago quarter, primarily reflecting an adverse currency impact of 4.5 percent. Sales decreased 1.8 percent on a constant currency basis, mainly due to a 2.1 percent decline in Boots UK.

Comparable pharmacy sales decreased 1.0 percent on a constant currency basis, primarily due to lower volume and lower National Health System (NHS) funding levels in the UK. Comparable retail sales decreased 2.7 percent on a constant currency basis, with Boots UK maintaining share in a retail market that remains challenging.

Gross profit decreased 9.9 percent compared with the same quarter a year ago, and on a constant currency basis, adjusted gross profit decreased 5.4 percent, in each case, mainly due to lower retail sales and margin in Boots UK, and to lower pharmacy margin.

SG&A as a percentage of sales increased by 4.5 percentage points. Adjusted SG&A as a percentage of sales, on a constant currency basis, increased by 0.2 percentage point.

Operating income in the fourth quarter decreased 78.7 percent from the year-ago quarter to $49 million, while adjusted operating income decreased 23.8 percent to $194 million, down 20.7 percent on a constant currency basis.

Pharmaceutical Wholesale:

Pharmaceutical Wholesale had fourth quarter sales of $5.7 billion, an increase of 3.1 percent from the year-ago quarter. On a constant currency basis, comparable sales increased 7.9 percent, led by emerging markets and the UK.

Operating income in the fourth quarter was $129 million, which included a gain of $59 million from the company’s equity earnings in AmerisourceBergen, compared with operating income of $163 million in the year-ago quarter, which included a gain of $49 million from the company’s equity earnings in AmerisourceBergen. Adjusted operating income increased 3.7 percent to $229 million, up 6.9 percent on a constant currency basis.

Dividends Declared

During the fourth quarter, the company declared a quarterly dividend of 45.75 cents per share, an increase of 4 percent. The dividend was payable September 12, 2019 to stockholders of record as of August 20, 2019 and raised the annual rate from $1.76 per share to $1.83 per share. This marked the 44th consecutive year that Walgreens Boots Alliance and its predecessor company, Walgreen Co., have raised the dividend.

Conference Call

Walgreens Boots Alliance will hold a one-hour conference call to discuss the fourth quarter results beginning at 8:30 a.m. Eastern time today, October 28, 2019. The conference call will be simulcast through the Walgreens Boots Alliance 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, October 28, 2019 through November 4, 2019 by calling +1 855 859 2056 within the U.S. and Canada, or +1 404 537 3406 outside the U.S. and Canada, using replay code 9494436.

¹ All references to earnings per share (EPS) are to diluted EPS attributable to Walgreens Boots Alliance.

² 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 organic sales and free cash flow.

³ Due to revisions made by IQVIA to the methodology used for its retail prescription database, market share has been restated for the comparable year-ago period.