Walgreens Boots Alliance, Inc. (WBA) is a leading integrated retail pharmacy and healthcare provider, with a rich 125-year heritage of serving communities across the United States and globally. The company has faced significant challenges in recent quarters, but its new leadership team is spearheading a strategic transformation to position the business for long-term success.
Financials
In the fiscal year 2023, Walgreens Boots Alliance reported annual revenue of $139.08 billion, a decrease from the previous year. The company's annual net income was -$3.08 billion, reflecting the impact of various one-time charges and impairments. Despite these headwinds, the company generated annual operating cash flow of $2.26 billion and annual free cash flow of $141 million.
The third quarter of fiscal 2024 saw Walgreens Boots Alliance deliver sales of $36.35 billion, up 2.6% year-over-year. However, adjusted earnings per share declined 36.6% to $0.63, as the company grappled with a challenging U.S. retail environment and pharmacy industry trends. The company's U.S. Retail Pharmacy segment experienced a 47.9% decline in adjusted operating income, while the International segment saw a 15.8% decrease in adjusted operating income. In contrast, the U.S. Healthcare segment continued to show improvement, with its second consecutive quarter of positive adjusted EBITDA.
Recent Developments
Given the severity and duration of the challenges in the operating environment, Walgreens Boots Alliance has undertaken a strategic and operational review to address these issues head-on. The company has concluded that the Retail Pharmacy experience will be more important to the healthcare industry in the years ahead, but it will evolve. To that end, the company is implementing a multifaceted action plan to enhance the customer and patient experience across its U.S. Retail Pharmacy business.
Store Footprint Optimization
One key element of this plan is a store footprint optimization program, which is expected to include the closure of a significant portion of the company's underperforming stores over the next three years. Walgreens Boots Alliance believes that reducing its store count will allow it to operate more efficiently and deliver a more relevant customer experience.
Strategic Initiatives
In addition to store closures, the company is taking steps to reevaluate its product assortment, accelerate its digital and omnichannel offerings, and invest in enhancing the pharmacy experience. This includes partnering with pharmacy schools to help advance the community pharmacy profession and elevate the role of pharmacists.
The company is also focused on changing the dialogue with its payer and PBM partners to ensure it is paid fairly for the value it provides. Walgreens Boots Alliance believes the current reimbursement model is outdated and does not adequately account for the evolving role of pharmacists in delivering healthcare services.
Portfolio Evaluation
Beyond its Retail Pharmacy business, Walgreens Boots Alliance has also evaluated its broader portfolio of assets. The company has concluded that it will continue to invest in and partner with its U.S. Healthcare segment, which includes the VillageMD, Shields, and CareCentrix businesses. However, the company is also exploring options to unlock value in its Boots UK business and is collaborating with VillageMD leadership to rapidly unlock liquidity and enhance optionality.
Outlook
Walgreens Boots Alliance's new CEO, Tim Wentworth, has brought a renewed sense of urgency and focus to the company's transformation efforts. Wentworth has assembled a strong leadership team and is confident in the company's ability to navigate the current challenges and position Walgreens Boots Alliance as a leader in the future of healthcare.
Looking ahead, the company has lowered its fiscal 2024 adjusted earnings per share guidance to a range of $2.80 to $2.95, reflecting the continued pressure on the U.S. retail environment and pharmacy industry trends. While the company is not providing specific guidance for fiscal 2025, it has outlined several factors that are expected to impact the business, including the wind-down of its sale-leaseback program, the sale of Cencora shares, and a more normalized adjusted effective tax rate.
Conclusion
Despite the near-term headwinds, Walgreens Boots Alliance remains confident in the long-term potential of its core Retail Pharmacy business and its ability to leverage its nationwide footprint and trusted relationships with customers to expand into adjacent healthcare services. The company's strategic review has provided a clear roadmap for simplifying and focusing its operations, using its core foundation to grow in capital-efficient ways, and identifying opportunities to deliver profitable growth and generate meaningful cash flow.
As Walgreens Boots Alliance continues to execute on its transformation plan, investors will be closely watching for signs of stabilization in the Retail Pharmacy segment and the company's ability to capitalize on the growing demand for convenient, integrated healthcare solutions. With a renewed focus on operational excellence, strategic partnerships, and innovation, Walgreens Boots Alliance is positioning itself to navigate the evolving healthcare landscape and emerge as a leader in the future of retail pharmacy and healthcare.