Walgreens Boots Alliance Surpasses Q4 Expectations, Announces Footprint Optimization Program
Walgreens Boots Alliance Inc (NASDAQ: WBA) delivered strong fourth-quarter fiscal year 2024 results, exceeding sales expectations and announcing a strategic footprint optimization program. The company reported sales of $37.55 billion, marking a 6% year-over-year increase (+6.1% on a constant currency basis), surpassing the consensus estimate of $35.76 billion. This growth was driven by strong performance across all segments.
Despite the positive sales figures, adjusted operating income experienced a decline of 37.7% on a constant currency basis. This was attributed to softer performance in the U.S. retail and pharmacy segment, reflecting the impact of lapping the reversal of incentive accruals and prior year sale-leaseback gains. However, these factors were partially offset by cost savings initiatives and improved profitability in the U.S. Healthcare segment. Adjusted EPS came in at $0.39, down 40.8% year-over-year, but still surpassing the consensus estimate of $0.36.
U.S. Retail Pharmacy Segment Shows Growth
The U.S. Retail Pharmacy segment witnessed substantial growth, with sales reaching $29.5 billion, representing a 6.5% increase year-over-year. Comparable sales rose by 8.3%. Pharmacy sales saw a significant boost of 9.6%, and comparable pharmacy sales increased by 11.7% in the fourth quarter, primarily driven by higher brand inflation and mix impacts.
Despite the positive trend in pharmacy sales, retail sales decreased by 3.5%, with comparable retail sales declining by 1.7% compared to the previous year. This downturn reflected a challenging retail environment and continued channel shift.
U.S. Healthcare Segment Continues to Expand
The U.S. Healthcare segment reported sales of $2.1 billion, marking a 7.1% year-over-year increase. This growth was fueled by a 7.2% increase in VillageMD sales, attributed to additional risk lives and fee-for-service revenue. Shields, a subsidiary of Walgreens Boots Alliance, saw a remarkable 27.8% increase in sales, driven by expansion within existing partnerships.
Footprint Optimization Program: Strategic Store Closures
In a significant strategic move, Walgreens Boots Alliance announced a footprint optimization program, targeting approximately 1,200 store closures over the next three years. The initial phase of this program will involve closing around 500 stores in fiscal 2025. The company anticipates this initiative to be immediately accretive to adjusted EPS and free cash flow.
Cost Savings and Debt Reduction Initiatives
Walgreens Boots Alliance highlighted its success in exceeding fiscal 2024 targets for cost savings, capital expenditure reduction, and working capital initiatives. The company achieved $1 billion in cost savings, a $600 million reduction in capital expenditures, and $500 million in working capital optimization. Furthermore, it achieved a significant reduction in net debt of $1.9 billion and lease obligations of $1.2 billion during the fiscal year.
Fiscal 2025 Guidance
For the upcoming fiscal year 2025, Walgreens Boots Alliance projects adjusted EPS in the range of $1.40 to $1.80, compared to the consensus estimate of $1.75. Sales are expected to fall between $147 billion and $151 billion, aligning with the consensus estimate of $147.28 billion. The company anticipates growth in its U.S. Healthcare and International segments, which is expected to more than offset a decline in the U.S. Retail Pharmacy segment and lower contributions from sale-leaseback and Cencora earnings.
WBA Stock Surges
Following the release of its earnings results, WBA stock experienced a significant surge, rising by 11.60% to $10.04 at the close of trading on Tuesday. This positive market reaction reflected investor confidence in the company’s strong performance and its strategic initiatives.