Walgreens Boots Alliance Inc. (NASDAQ:$WBA) is a multinational holding company based in Deerfield, IL, that owns Walgreens, the second-largest pharmacy retail chain in the US behind CVS and Boots in the UK.
Walgreens Boots Alliance Second Quarter Fiscal 2024 Results
On Thursday, March 28, 2024, WBA reported its Q2 fiscal 2024 financial results, reporting a $5.9 billion net loss for the quarter, primarily due to a $5.8 billion non-cash impairment charge related to its purchase of VillageMD. The company’s shares rose 1% in volatile morning trading despite the massive loss and a narrowed earnings outlook for the full year.
While Walgreens Boots Alliance’s Q2 revenue of $37.1 billion surpassed estimates of $35.86 billion and grew 6.3% Y/Y, the company’s retail performance was dull. Comparable retail sales declined 4.3% compared to the year-ago quarter, excluding store openings and closings, reflecting the difficult retail landscape, channel shifts, and a weaker respiratory season.
It reported a Q2 loss per share of $6.85 compared to a $0.81 EPS in Q223 and an adjusted EPS of $1.20, up 3.4%, up 2.8% on an FX-neutral basis driven by a lower adjusted effective tax rate, and improved profitability of its US operations.
Commenting on the results, Anjalee Khemlani, a Yahoo Finance reporter, stated, “They’ve been challenged on the front end for quite some time,”
VillageMD Writedown and Strategic Review
The massive $5.8 billion non-cash impairment charge related to VillageMD, a core part of Walgreens Boots Alliance’s push to expand beyond its traditional pharmacy operations, was a significant blow to its financial performance. They plan to shut down over 160 clinics to focus on sites located in densely populated areas.
In response to these challenges, the new CEO, Tim Wentworth, announced that the company is “reviewing every business through a longer-term lens” to focus on cost savings and strategic fit. “We are continuing to strategically review our portfolio over the next three months in an effort to ensure it drives growth and delivers value,” Wentworth stated.
Narrowed guidance
The Deerfield, Illinois-based company cited a challenging retail environment as the primary reason for trimming its adjusted EPS guidance for fiscal 2024 to $3.20 to $3.35, down from the previous range of $3.20 to $3.50.
Cost-Cutting Efforts and Operational Excellence
Wentworth expressed confidence in achieving the company’s goal of $1 billion in cost savings for the current fiscal year. He also highlighted the importance of operational excellence, stating that the new executive committee, with a track record of operational excellence, is “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.”
Despite the challenges, Walgreens Boots Alliance saw positive signs in its pharmacy services business, with comparable pharmacy sales increasing 8.7% in the second quarter, driven by higher branded drug inflation and strong execution. The company’s U.S. Healthcare segment also achieved adjusted EBITDA profitability for the first time, reflecting growth from VillageMD and Shields and continued cost discipline.
International Segment Resilience and Digital Growth
Walgreens Boots Alliance’s International segment, which includes the Boots UK retail pharmacy chain and the Germany wholesale business, demonstrated resilience amid the challenging environment. Sales in the segment increased 6.6% to $6.0 billion, with the German wholesale business growing 5.3% and Boots UK sales rising 3.0%.
Boots UK’s comparable retail sales increased 5.9% compared to the year-ago quarter, with growth across all categories. The company’s e-commerce platform, Boots.com, continued to perform strongly, with sales growing 16.8% and representing over 17% of Boots’ total retail sales.
Cash Flow and Debt Management
Walgreens Boots Alliance’s cash flow metrics reflected the impact of the challenging environment and legal matters. Net cash used for operating activities was $637 million in the second quarter, negatively impacted by $615 million in payments related to legal matters, a $379 million Boots Pension Plan Annuity premium, and underlying seasonality.
Free cash flow, a measure of the company’s ability to generate cash after accounting for capital expenditures, was negative $610 million, a $1.3 billion decrease compared to the year-ago quarter.
On the debt management front, Walgreens Boots Alliance issued $15 billion in new debt during the first six months of fiscal 2024 while repaying $14.9 billion, indicating active debt management efforts to support its operations and strategic initiatives.
Outlook and Challenges Ahead
As Walgreens Boots Alliance navigates the challenging retail environment and executes its strategic review, the company faces headwinds from softer consumer demand, inflationary pressures, and the ongoing impact of the VillageMD writedown. However, the company’s focus on cost savings, operational excellence, and strategic portfolio review could position it for long-term growth and value creation.
Jeff Jonas, a portfolio manager at Gabelli Funds, which holds a less than 1% stake in Walgreens Boots Alliance, expressed cautious optimism, stating, “The valuation is really low (and) the dividend is good. So we’re getting paid to wait. And maybe the new CEO comes up with something even more creative.”
While the road ahead may be bumpy, its resilience, strategic initiatives, and the leadership of its new CEO offer hope for a turnaround in the coming years as the company strives to navigate the challenges and capitalize on growth opportunities in the evolving healthcare and retail landscape.
WBA Stock Performance
Walgreens Boots Alliance’s stock (WBA) is trading at $21.66, up 3.02% as of 01:39 PM EDT. Despite the company’s substantial quarterly loss, the market reacted positively to the sales growth and the narrowed yet optimistic full-year guidance. The stock’s technical indicators suggest potential upward momentum, with WBA exhibiting a bullish symmetrical triangle pattern and a moderate RSI of 50.
Should You Buy WBA Stock in 2024?
Investors considering Walgreens Boots Alliance stock in 2024 should weigh the potential rewards against the risks. The company’s sales growth, cost-saving initiatives, and strategic portfolio review suggest long-term value-creation prospects.
However, the challenging retail environment, inflationary pressures, and the VillageMD writedown’s impact could continue to exert downward pressure.
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