Q2 2024 Earnings Summary
- Walgreens Boots Alliance is proactively exploring new reimbursement models, including cost-plus models, and engaging constructively with PBMs and payers, potentially enhancing profitability.
- Cost savings initiatives are on track to achieve $1 billion in savings this year, primarily in the U.S. Retail Pharmacy segment, improving the company's cost structure and enhancing cash flow.
- The leadership team is reviewing every business to maximize growth potential and generate cash flow, focusing on simplifying and strengthening WBA, which could unlock value and enhance shareholder returns.
- Walgreens Boots Alliance lowered its full-year adjusted EPS guidance due to a challenging U.S. retail environment, with fiscal 2024 retail comparable sales now expected to be down approximately 3%.
- The company recognized a $5.8 billion after-tax noncash goodwill impairment charge related to its investment in VillageMD, due to the closure of approximately 160 clinics and slower-than-expected trends, affecting profitability and growth prospects of the health care segment.
- Walgreens is winding down its sale-leaseback program, removing a previous source of gains, and does not anticipate any material benefit going forward, resulting in headwinds to adjusted operating income.
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Fiscal '25 Outlook
Q: Can you discuss the progression into '25 and guidance?
A: The company is not providing fiscal '25 guidance at this time. They are working on a strategic review with the executive team and a detailed 3-year plan, which they will share in the next 3 to 6 months. They expect continued growth in U.S. health care, with Village focusing on core markets and ongoing cost actions. Factors like U.S. health care growth, cost savings, retail expectations, and seasonality will impact '25. -
Reimbursement Models and Profit Growth
Q: What's the timing for new reimbursement models to boost profit?
A: The company is having constructive conversations with payers and PBMs about new reimbursement models and creating value for payers. They acknowledge that structural changes will take multiple years and are working with their distributor to reconfigure their partnership. -
VillageMD Closures and Capitation
Q: What is the outlook for VillageMD closures and capitation model?
A: VillageMD has closed 140 locations and is focusing on core markets. Payers and health systems are interested in working with Walgreens to drive medical expense savings, leveraging their unmatched consumer reach. -
Retail Segment and Own Brands
Q: How quickly can you implement own brand expansion and realign national brands?
A: The company is accelerating own brand expansion rapidly, launching 37 new products in Q2. Changes like increasing shelf depth and store reach for own brands can be done quickly, while new product innovation takes longer. -
Vaccines and Pharmacy Services Contribution
Q: Can you split the contribution between pharma services, front end, and pharmacy?
A: They are not prepared to break out contributions quantitatively but state that vaccines and test-and-treat services are very meaningful to overall pharmacy reimbursements and growth. -
Direct Relationships with Pharma
Q: Can you comment on potential direct relationships with pharma companies like Lilly Direct?
A: The company believes they are a natural partner for pharma companies wanting to go direct to patients when the normal supply chain isn't effective. They have relationships with every American and with every pharma company, offering a clinically aligned partnership. -
PBM Reimbursement Changes Impact
Q: Did PBM reimbursement changes affect cash flows or cadence?
A: They are not seeing a negative impact on reimbursement due to PBM changes. Any potential negative impacts are offset by performance-based contracts where they can overperform. -
Portfolio Strategy and Unlocking Value
Q: How are you thinking about the portfolio and unlocking value?
A: The company is conducting an intense review of every asset in their portfolio. They are willing to make difficult decisions and are committed to ensuring each asset advances their expansion into health care's fastest-growing areas. -
Retail Decline and Same-Store Sales
Q: Are you seeing changes in same-store script economics in H2?
A: They expect to grow in line with the market and hold share in script growth. They continue to see a challenging retail environment and have lowered expectations to a negative 3% comp for the full year.