Company Overview and History
Walgreens Boots Alliance, Inc. (WBA) is a leading integrated healthcare, pharmacy, and retail company with a rich 170-year history. The company's operations are conducted through three reportable segments: U.S. Retail Pharmacy, International, and U.S. Healthcare.
The company's roots trace back to 1901 when Charles R. Walgreen Sr. opened the first Walgreen drug store in Chicago. Over the decades, Walgreens expanded across the United States, becoming one of the largest drugstore chains in the country. In 2014, Walgreen Co. acquired a 45% stake in Alliance Boots, a leading international pharmacy-led health and beauty group, marking a significant step in the company's global expansion. In 2015, Walgreen Co. completed the acquisition of the remaining 55% of Alliance Boots, forming the new Walgreens Boots Alliance, Inc.
This transformative merger created a global leader in retail and wholesale pharmacy, with over 13,200 stores in 11 countries. The combined company leveraged its extensive global footprint, supply chain infrastructure, and pharmacy expertise to drive growth and efficiency. Alliance Boots brought with it a rich history dating back to 1849 when John Boot opened a small herbalist shop in Nottingham, England. Over time, Boots grew to become one of the largest health and beauty retailers in the United Kingdom.
Throughout its history, Walgreens Boots Alliance has demonstrated innovation in the pharmacy sector. In 1930, Walgreen opened the first drive-through pharmacy, and in the 1950s, the company pioneered the use of automated prescription-filling equipment. These innovations helped solidify Walgreens' position as a household name across the United States by the 1970s.
In recent years, Walgreens Boots Alliance has faced various challenges, including increasing competition from online retailers and the rise of value-based care models in healthcare. The company has responded by investing heavily in its digital capabilities and diversifying its revenue streams. A notable example of this strategy is the acquisition of VillageMD in 2023, which strengthened the company's position in the primary care market.
Today, Walgreens Boots Alliance operates over 8,000 stores worldwide, with the majority, approximately 6,000, being profitable. The company's core strength lies in its expansive retail pharmacy footprint, trusted brand, and deep customer relationships, providing a solid foundation for its strategic initiatives.
Financials
Financially, Walgreens Boots Alliance has faced its share of challenges in recent years. In fiscal 2024, the company reported revenue of $147.66 billion, but faced a significant net loss of $8.636 billion. This loss was largely attributed to a $12.4 billion non-cash goodwill impairment charge related to the company's VillageMD reporting unit within the U.S. Healthcare segment. The company's operating cash flow for fiscal 2024 was $1.02 billion, while free cash flow was negative at -$363 million.
In the most recent quarter (Q4 2024), Walgreens Boots Alliance showed some signs of improvement. Revenue increased by 6.0% year-over-year to $37.55 billion, driven by growth in the U.S. Healthcare segment, although this was partly offset by continued challenges in the U.S. Retail Pharmacy segment. However, the company still reported a net loss of $3.005 billion for the quarter, compared to a loss of $330 million in the prior year quarter. This loss was primarily due to a $2.3 billion charge for valuation allowance on deferred tax assets and a $696 million impairment charge.
On a positive note, operating cash flow for Q4 2024 improved to $1.332 billion, compared to $663 million in the prior year quarter. Free cash flow also saw a significant improvement, reaching $1.086 billion, up from $549 million in the same quarter of the previous year.
The company's performance varies across its three main segments:
1. U.S. Retail Pharmacy: In Q3 2024, sales for this segment increased by 2.3% to $28.50 billion, driven by pharmacy sales but offset by a decline in retail sales. Comparable sales increased by 3.5%, with pharmacy sales up 4.4% and retail sales down 4.0%. However, adjusted operating income for the segment decreased by 47.9% to $501 million, reflecting challenges in the retail environment, generic prescription launches, increased reimbursement pressure, and lower sale-leaseback gains.
2. International: Sales for this segment increased by 2.8% to $5.73 billion in Q3 2024. On a constant currency basis, sales grew by 1.6%, with the Germany wholesale business growing 4.9% and Boots UK sales growing 1.6%. Adjusted operating income for the segment decreased by 15.8% to $175 million, primarily due to lower real estate gains compared to the prior year.
3. U.S. Healthcare: This segment saw sales growth of 7.1% to $2.12 billion in Q3 2024, led by growth in VillageMD and Shields. The adjusted operating loss for the segment improved to $22 million, compared to a loss of $172 million in the prior year period. Adjusted EBITDA for the segment was $23 million, a $136 million improvement over the prior year period.
Geographically, Walgreens Boots Alliance operates primarily in the United States, which accounts for the majority of its revenue and earnings. The company also has international presence in markets such as the UK, Germany, and Mexico.
Despite these headwinds, Walgreens Boots Alliance has remained focused on executing a strategic transformation to position the company for long-term success. In fiscal 2024, the company achieved over $1 billion in cost savings through its Transformational Cost Management Program, which included initiatives such as optimizing its store footprint and streamlining its operations. Furthermore, the company has made progress in reframing its relationship with pharmacy benefit managers (PBMs) to ensure fair reimbursement for its services.
Looking ahead to fiscal year 2025, Walgreens Boots Alliance has provided adjusted EPS guidance of $1.40 to $1.80. This guidance factors in continued pressure on pharmacy reimbursement rates, although the company has negotiated approximately 80% of the contract volume for calendar year 2025. The guidance also assumes continued price-sensitive consumer behavior, similar to fiscal year 2024, and expects growth in both the Healthcare and International segments.
As part of its ongoing transformation efforts, Walgreens Boots Alliance plans to close approximately 1,200 stores over the next three years, with about 500 targeted for closure in fiscal year 2025. This is expected to provide $100 million of AOI benefit and positive cash contributions in fiscal year 2025. The company also expects working capital initiatives to generate approximately $500 million of free cash flow and capital expenditure reductions of approximately $150 million in fiscal year 2025.
For the U.S. Healthcare segment, Walgreens Boots Alliance expects adjusted EBITDA to improve by $250 million at the midpoint compared to fiscal year 2024, to a range of $280 million to $350 million.
Liquidity
Walgreens Boots Alliance's liquidity position remains an area of focus for the company. As of the most recent reporting period, the company had a debt-to-equity ratio of 0.918, indicating a relatively balanced capital structure. Cash and cash equivalents stood at $3.22 billion, providing a cushion for short-term obligations and operational needs.
The company has access to $5.8 billion under committed revolving credit facilities, with only $70 million drawn, providing significant financial flexibility. However, the current ratio of 0.680 and quick ratio of 0.372 suggest that the company may face some challenges in meeting its short-term obligations with its most liquid assets.
In fiscal 2024, Walgreens Boots Alliance made progress in strengthening its balance sheet, reducing its net debt by $1.9 billion. This debt reduction, combined with the company's focus on improving cash flow and working capital management, demonstrates a commitment to enhancing its financial position.
Looking ahead, Walgreens Boots Alliance is prioritizing the stabilization of its core business, improvement of its operating cash flow, and further strengthening of its balance sheet. The company has outlined a multi-year strategy centered on two guiding principles: being a retail pharmacy-led organization and maintaining a disciplined financial model.
As part of this strategy, Walgreens Boots Alliance plans to accelerate the closure of underperforming stores, with a target of closing approximately 1,200 stores over the next three years. This optimization of the company's footprint is expected to enable Walgreens to respond more dynamically to shifting consumer behavior and preferences, while also generating cost savings and improving cash flow.
Additionally, the company is focused on refreshing its merchandising strategy, with plans to offer a more curated product assortment, including an expansion of its own brand offerings. This strategic shift aligns with the company's goal of becoming a more relevant destination for categories where it believes it can lead, such as health and wellness.
In the U.S. Healthcare segment, Walgreens Boots Alliance is evaluating strategic options for its investment in VillageMD, including potential monetization. The company views this as an opportunity to reap gains from its portfolio and further strengthen its balance sheet.
Challenges and Transformation Efforts
Walgreens Boots Alliance's transformation efforts have not been without challenges. The company has faced scrutiny from short reports, which have raised concerns about its business practices and financial performance. Furthermore, the company has been embroiled in legal battles related to the opioid crisis, which resulted in a $6.6 billion settlement in fiscal 2024.
The retail pharmacy industry as a whole has faced headwinds in recent years, including reimbursement pressure, competition from online and mail-order pharmacies, and changing consumer shopping behaviors. The industry's compound annual growth rate (CAGR) has been in the low to mid-single digits, reflecting these challenges.
Despite these obstacles, Walgreens Boots Alliance remains committed to its turnaround strategy. The company's new leadership team, led by CEO Tim Wentworth, has been instrumental in driving this transformation. Wentworth, who joined the company in 2023, has assembled a seasoned management team and implemented a disciplined approach to capital allocation and cost management.
Future Outlook
Looking ahead, Walgreens Boots Alliance's fiscal 2025 guidance reflects the near-term challenges the company is facing. The company expects adjusted earnings per share to be in the range of $1.40 to $1.80, down from the $2.88 reported in fiscal 2024. This guidance factors in continued pressure on pharmacy reimbursement rates, a challenging consumer environment, and the ongoing impact of store closures.
Despite these near-term headwinds, Walgreens Boots Alliance remains committed to its long-term vision of being a leading retail pharmacy-driven company. The company's vast store network, trusted brand, and focus on healthcare services position it well to navigate the evolving industry landscape and capture future growth opportunities.
In conclusion, Walgreens Boots Alliance is a company in transition, navigating a complex and competitive environment. While the company has faced significant challenges in recent years, its strategic initiatives, disciplined approach to capital allocation, and experienced leadership team suggest that Walgreens Boots Alliance is well-positioned to stabilize its core business and lay the groundwork for a stronger, more sustainable future.