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Walgreens Boots Alliance, Inc. (WBA)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 FY2025 sales rose 7.5% year over year to $39.5B; GAAP EPS was a loss of $0.31 and adjusted EPS was $0.51, down 23% YoY primarily on weaker U.S. retail and lapping prior-year sale-leaseback gains, partly offset by cost savings and U.S. Healthcare growth .
  • Consolidated adjusted operating income was $593M (vs. $687M last year) as U.S. Retail Pharmacy AOI fell to $441M; International AOI increased to $168M; U.S. Healthcare moved to positive AOI of $25M .
  • Management maintained FY2025 adjusted EPS guidance of $1.40–$1.80 at Q1, but later withdrew FY2025 guidance in Q2 due to the pending Sycamore Partners acquisition .
  • Key narrative drivers: footprint optimization progressing (500 closures planned in FY25; ~$100M AOI benefit expected), pharmacy reimbursement contract resets, procurement work with Cencora, and U.S. Healthcare improvement (VillageMD/Shields) amid continued front-end retail headwinds; dividend suspended to prioritize balance sheet and cash flow .

What Went Well and What Went Wrong

  • What Went Well

    • U.S. Healthcare improved: sales +12% YoY to $2.2B; AOI turned positive ($25M); adjusted EBITDA improved to $70M driven by VillageMD and Shields .
    • International strength: Boots UK comp retail +8.1% and comp pharmacy +10.9%; boots.com +30% (23% constant currency), representing 22% of retail sales; International AOI up to $168M .
    • Strategic execution: “disciplined execution against our 2025 priorities… stabilizing the retail pharmacy, optimizing our footprint, controlling operating costs, improving cash flow and addressing reimbursement models” (CEO Tim Wentworth) .

  • What Went Wrong

    • Front-end retail softness: U.S. retail sales -6.2% YoY; comp retail -4.6% on weaker cough/cold/flu and discretionary categories; management revised FY25 retail comp outlook to down ~4–5% (from down ~2–3%) .
    • Lower adjusted EPS: $0.51 vs. $0.66 last year, pressured by weaker U.S. retail and lapping prior sale-leaseback gains; GAAP net loss widened to $265M .
    • Pharmacy margin headwinds persisted (brand inflation/mix, net reimbursement pressure), with NADAC changes expected to be a sub-$50M negative for the year, tempering margin recovery pace .

Financial Results

MetricQ3 2024 (oldest)Q4 2024Q1 2025 (newest)
Revenue ($USD Billions)$36.351 $37.547 $39.459
Operating Income (Loss) ($USD Millions)$111 $(978) $(245)
Adjusted Operating Income ($USD Millions)$613 $424 $593
Net Income (Loss) ($USD Millions)$344 $(3,005) $(265)
GAAP EPS ($)$0.40 $(3.48) $(0.31)
Adjusted EPS ($)$0.63 $0.39 $0.51
Gross Margin % (GAAP)17.8% 16.7% 17.2%
Adjusted Operating Margin %1.4% 0.9% 1.3%

Segment breakdown (Q1 2025)

SegmentSales ($USD Millions)Adjusted Operating Income ($USD Millions)Prior-Year Sales ($USD Millions)Prior-Year AOI ($USD Millions)
U.S. Retail Pharmacy$30,866 $441 $28,944 $694
International$6,425 $168 $5,832 $142
U.S. Healthcare$2,172 $25 $1,931 $(96)
Consolidated$39,459 $593 $36,707 $687

Key KPIs (Q1 2025)

KPIValue
U.S. Retail Pharmacy comp sales+8.5% YoY
U.S. comparable pharmacy sales+12.7% YoY
U.S. comparable retail sales−4.6% YoY
U.S. total prescriptions (30-day equivalents)316.3M (+1.5% YoY)
U.S. comparable scripts ex-immunizations+3.5% YoY
Boots UK comp pharmacy sales+10.9% YoY
Boots UK comp retail sales+8.1% YoY
Boots.com sales growth+30% (23% constant currency); 22% of retail sales

Guidance Changes

MetricPeriodPrevious GuidanceCurrent Guidance (Q1 FY25)Change
Adjusted EPS (Non-GAAP)FY2025$1.40–$1.80 (Q4 FY2024) $1.40–$1.80 (maintained) Maintained
U.S. Retail comp sales outlookFY2025Down ~2% to 3% (prior internal view) Down ~4% to 5% Lowered
Footprint Optimization AOI benefitFY2025N/A~$100M AOI benefit in FY25 New/Quantified
NADAC pharmacy margin impactFY2025 remainderN/A< $50M negative impact New/Updated
Dividend policyOngoingQuarterly cash dividend historically paid Dividend suspended (Jan 30, 2025) Suspended
FY2025 Guidance status (post Q1)FY2025Maintained at Q1 Withdrawn in Q2 (pending Sycamore acquisition) Withdrawn (transaction-related)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 FY2024)Previous Mentions (Q4 FY2024)Current Period (Q1 FY2025)Trend
Footprint OptimizationAnnounced program; multiyear closures planned Detailed: ~1,200 closures over 3 years; ~500 in FY25 ~70 closed in Q1; ramp to ~500 in FY25; script retention better than expected Execution progressing; confidence rising
U.S. Retail headwindsLowered FY24 adj EPS; retail softness and margin pressure Retail margin pressure persists; adjusted EPS $0.39 Comp retail −4.6%; FY25 retail comp outlook lowered; warmer season impact Continued pressure
Pharmacy reimbursementMargin pressure noted Aimed to address reimbursement models 2025 contracts complete; rebalanced brands/generics; carved out high-cost drugs; reduced pressure expected Structurally improving
Procurement (Cencora)Noted equity earnings dynamics Strategy focus; equity earnings Working to modernize procurement with Cencora; long-term competitiveness goal Work-in-progress
Micro-fulfillment centers (MFCs)Slowed rollout to optimize Execution focus Serving ~4,800 stores; shipped volume +23% YoY; lower in-store fill; plan to ~6,000 stores over 12 months Scaling with better ops
U.S. HealthcareImproving profitability (VillageMD/Shields) Adj EBITDA improved; AOI positive in Q4 Sales +12%; AOI +$25M; Adj EBITDA +$70M Continued improvement
Capital allocationFocus on FCF and debt; FY24 FCF soft on legal FY25 guidance set; debt/leases reduced in FY24 Dividend suspended to strengthen balance sheet and FCF De-risking/liquidity focus

Management Commentary

  • CEO Tim Wentworth: “Our first quarter results reflect our disciplined execution against our 2025 priorities: stabilizing the retail pharmacy by optimizing our footprint, controlling operating costs, improving cash flow and continuing to address reimbursement models… While our turnaround will take time, our early progress reinforces our belief in a sustainable, retail pharmacy-led operating model.” .
  • CFO Manmohan Mahajan: “Adjusted EPS of $0.51 declined 23% year-over-year… entirely driven by prior year sale-leaseback gains and lower Cencora equity income… We remain on track to achieve [$500M] in working capital initiatives and are currently ahead of our target for a $150M reduction in capital expenditures.” .
  • CEO on footprint: “Our initial wave of store closures has performed better than expected… This gives us increased confidence in our centralized, deliberate approach…” .
  • CEO on reimbursement: “We have now completed all of the contract negotiations for calendar 2025… carving out new categories for high-cost drugs (e.g., GLP-1s) and rebalancing brands and generics…” .

Q&A Highlights

  • Reimbursement contracts: 2025 contracts completed; structures reduce margin pressure now and set basis for multi-year improvement; carve-outs for high-cost drugs and brand/generic rebalancing; significant portion of book renegotiated .
  • Footprint optimization: ~70 closures in Q1; on track for ~500 in FY25; AOI benefit expected ~$100M; better-than-expected script retention and employee engagement .
  • Cost-plus dynamics: Management sees industry shift consistent with its own contract changes (rebalance service fee over acquisition cost); approach intended to enable sustainable pharmacy economics .
  • Procurement with Cencora: Ongoing discussions to modernize and maximize procurement competitiveness; not broken out in FY25 guidance .
  • Free cash flow: Year-over-year improvement in Q1 driven by lower capex and working capital; full-year FCF guidance not provided; legal payments remain a headwind; dividend suspended to prioritize balance sheet .
  • Front-end merchandising: Launching health/wellness categories (women’s wellness, super foods, sports nutrition), own-brand push; omnichannel and digital (virtual check-in) initiatives to improve experience .

Estimates Context

  • S&P Global consensus EPS and revenue estimates for Q1 FY2025 were unavailable due to a Capital IQ mapping error for WBA; therefore, explicit beats/misses vs consensus cannot be presented. Values would normally be retrieved from S&P Global; not available in this instance.

Key Takeaways for Investors

  • Pharmacy stabilization is underway: 2025 payer contracts complete with carve-outs and brand/generic rebalancing; management expects reduced reimbursement pressure in 2025, a key margin lever .
  • Footprint optimization is a near-term earnings and cash catalyst: ~500 closures targeted in FY25 with ~$100M AOI benefit and positive working capital/sale proceeds vs closure costs; execution metrics (script retention) tracking ahead of plan .
  • U.S. Healthcare improving: VillageMD and Shields drove AOI positive and adjusted EBITDA expansion; further improvement expected as portfolio is streamlined (VillageMD sale process) .
  • International remains a bright spot: Boots UK robust comps and digital penetration; Germany wholesale growth; International AOI up YoY .
  • Retail headwinds persist: Front-end comps lowered to down ~4–5% for FY25; warmer season and discretionary softness weigh; merchandising and own-brand strategies are aimed at mitigating .
  • Balance sheet and FCF prioritization: Dividend suspension underscores focus on debt reduction and cash generation amid elevated legal payments; consider impacts on income-focused holders and potential re-rating on cash metrics execution .
  • Transaction overhang: Q2 withdrawal of FY25 guidance due to pending Sycamore Partners acquisition introduces near-term uncertainty but may limit interim disclosures and calls; monitor regulatory/shareholder milestones .