Exchange: NASDAQ | Sector: Healthcare | Industry: Medical Pharmaceuticals
Q1 2024
Published: Jan 4, 2024
Earnings Highlights
Revenue of $36.71B up 10% year-over-year
EPS of $-0.08 decreased by 98.2% from previous year
Gross margin of 18.4%
Net income of -67.00M
"Tim Wentworth: 'Managing through the accumulating consumer pressures from inflation and depleted savings... We are navigating the accumulated consumer pressures.'" - Tim Wentworth, CEO
Walgreens Boots Alliance (WBA) reported unplanned results for Q1 2024, demonstrating resilience amid a challenging retail environment. The company generated revenue of $36.71 billion, up 8.7% on a constant currency basis. However, the net loss attributable to shareholders was $67 million, corresponding to an adjusted EPS of $0.66, representing a 44% decline year-over-year. Management emphasized ongoing cost discipline and strategic initiatives in U.S. Healthcare, particularly through VillageMD, which is evolving as a pivotal segment for future growth. Despite adverse market conditions, including inflationary pressures and a weaker respiratory season, WBA affirmed its full-year adjusted EPS guidance, reflecting confidence in its operational adaptability and market position.
Trends:
- U.S. Retail Pharmacy Sales Growth: 6.4%, driven by pharmacy services despite a 6.1% decline in retail.
- International Segment Growth: 4.4%, with Boots UK showing resilience and share gains.
- Within U.S. Healthcare: Revenue soared 95% YoY, largely attributed to the Summit Health acquisition.
Management indicated that operating cash flow was negatively impacted by seasonal inventory builds and reimbursement timing, but expects to achieve about $1 billion in cost savings in the current year, a move complemented by a significant 48% cut to quarterly dividends to support capital investments.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
36.71B
9.96%
3.63%
Gross Profit
6.77B
-2.63%
4.56%
Operating Income
-39.00M
-99.37%
-91.35%
Net Income
-67.00M
-98.20%
-62.78%
EPS
-0.08
-98.20%
-63.05%
Key Financial Ratios
currentRatio
0.66
grossProfitMargin
18.4%
operatingProfitMargin
-0.11%
netProfitMargin
-0.18%
returnOnAssets
-0.07%
returnOnEquity
-0.24%
debtEquityRatio
1.22
operatingCashFlowPerShare
$-0.33
freeCashFlowPerShare
$-0.91
dividendPayoutRatio
-619%
priceToBookRatio
0.62
priceEarningsRatio
-64.21
Net Income vs. Revenue
Expense Breakdown
Management Commentary
- Management Focus: CEO Tim Wentworth stated, "WBA started fiscal 2024 with unplanned results despite a weak retail environment in the U.S... We are on pace toward $1 billion in cost savings this year."
- U.S. Healthcare Initiatives: "VillageMD is driving patient panel growth, achieving 23% year-over-year growth in full risk lives."
- Dividend Adjustment: "An additional meaningful and necessary step to strengthen our long-term balance sheet...we are announcing a 48% reduction in our quarterly dividend payment."
- Market Outlook: "We are maintaining full year adjusted EPS guidance against the challenging backdrop."
Tim Wentworth: 'Managing through the accumulating consumer pressures from inflation and depleted savings... We are navigating the accumulated consumer pressures.'
â Tim Wentworth, CEO
Manmohan Mahajan: 'Sales increased 8.7% on a constant currency basis... Adjusted EPS of $0.66 declined 44%... mainly driven by lower US retail sales.'
â Manmohan Mahajan, Interim CFO
Forward Guidance
Looking ahead, WBA maintains its adjusted EPS guidance for FY24 despite headwinds from lower consumer spending and market growth in pharmacy volumes. The management anticipates that initiatives in U.S. Healthcare will bolster segment profitability, targeting breakeven adjusted EBITDA as VillageMD and Shield expand their market reach. Upcoming improvements in the effective tax rate, due to strategic tax planning, further support a cautiously optimistic outlook for the financial year. Investors should monitor continued advancements in cost-savings initiatives and response to evolving consumer needs in both retail and health services segments.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
WBA Focus
18.44%
-0.11%
-0.24%
-64.21%
PETS
28.80%
-2.72%
-0.75%
-79.03%
BIMI
52.90%
18.20%
-11.60%
-59.60%
YI
5.91%
0.11%
2.33%
-138.17%
CJJD
20.30%
0.33%
-2.45%
-5.15%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
WBA's current investment outlook suggests cautious optimism, primarily driven by potential growth in the U.S. Healthcare segment and rigorous cost management strategies. Despite significant challenges faced during Q1, including market performance and a reduction in consumer spending, the forward guidance reflects a continued commitment to maintaining strategic focus while enhancing operational efficiencies. Investors are advised to monitor WBA's execution against its cost-saving targets and its innovative healthcare service strategies, as these will be critical in determining future valuation and share price performance.
Key Investment Factors
Growth Potential
WBA has a solid growth trajectory in the U.S. Healthcare segment with VillageMD, which shows promise in terms of patient panel growth and improving profitability through operational optimizations.
Profitability Risk
Ongoing economic pressures create vulnerability in retail performance, while risks from market competition in pharmacy services and the structural headwinds in core retail remain a concern.
Financial Position
Despite a challenging Q1, WBA's strategic dividend cut and focus on cost containment positions it for future stability; however, a significant increase in debt levels raises concerns regarding long-term solvency.
SWOT Analysis
Strengths
Strong brand recognition and community presence across the U.S. and international markets.
Established relationships with payors, providers, and pharmaceutical companies that bolster patient access to services.
Weaknesses
Dependence on retail pharmacy performance amidst declining foot traffic and discretionary spending.
Significant net losses reflect ongoing profitability challenges, with adjusted EPS declining 44% YoY.
Opportunities
Expansion in U.S. Healthcare through VillageMD and integrated pharmacy services.
Monetization of non-core assets to strengthen balance sheet and support growth initiatives.
Threats
Intense competition in the pharmacy services market from both retail and online players.
Regulatory pressures and market shifts in insurance can impact revenue streams.