Walgreens Boots Alliance, Inc. (WBA)·Q3 2025 Earnings Summary

Executive Summary

• Q3 FY25 sales rose 7.2% YoY to $39.00B, but GAAP EPS was a loss of $0.20 and adjusted EPS fell 39.6% YoY to $0.38, driven by a higher adjusted tax rate, higher incentive accruals, lower U.S. retail sales, and lower equity earnings in Cencora; adjusted operating income was $558M versus $613M a year ago .
• U.S. Healthcare continued to improve: segment adjusted operating income turned positive to $54M (vs. -$22M prior-year) and adjusted EBITDA reached $86M, offsetting persistent front-end retail weakness in U.S. Retail Pharmacy (retail comps -2.4%) .
• Free cash flow was $336M in Q3 despite $252M of legal payments (mainly opioid-related); YTD operating cash flow improved $559M vs. last year, aided by working capital, lower cash taxes, and lower interest, partly offset by higher legal payments .
• With a definitive agreement to be acquired by affiliates of Sycamore Partners, WBA withdrew FY25 guidance and did not host a Q3 call; the merger is expected to close in 2H CY25 pending approvals—this deal path and regulatory progress are the dominant stock catalysts near term .

What Went Well and What Went Wrong

• What Went Well

  • U.S. Healthcare improved materially: adjusted operating income of $54M and adjusted EBITDA of $86M, reflecting better VillageMD performance and growth at Shields and CareCentrix .
  • International strength continued: Boots UK and German wholesale grew; International adjusted operating income rose 22% YoY to $214M (constant currency +20.2%) .
  • Cost savings traction: management highlighted “benefits from our cost savings initiatives” and ongoing turnaround priorities amid a tough retail backdrop. “We remain focused on our turnaround plan…” — CEO Tim Wentworth .

• What Went Wrong

  • Front-end retail remained soft: U.S. Retail Pharmacy retail comps -2.4% and retail sales -5.3% YoY, with weakness in grocery/household, health & wellness, and beauty .
  • Adjusted EPS decline: Q3 adjusted EPS of $0.38, down from $0.63 YoY, reflecting higher adjusted tax rate, higher incentive accruals, lower U.S. retail sales, and lower Cencora equity earnings .
  • Legal cash drag persisted: $252M of legal payments in Q3 (opioid-related) weighed on operating cash flow despite an otherwise improved working capital and tax/interest profile .

Financial Results

Segment performance (sales, adjusted operating income):

Key KPIs (U.S. Retail Pharmacy):

Other cash/FCF highlights:

• Q3 net cash from operating activities $584M; Free cash flow $336M; legal payments ~$252M .
• YTD FY25 operating cash flow $245M (improved by $559M YoY); YTD FCF $(506)M (improved by $557M YoY) .

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “Third quarter results reflect continued improvement in our U.S. Healthcare segment and benefits from our cost savings initiatives, while we continued to see weakness in our U.S. front-end sales. We remain focused on our turnaround plan…” — CEO Tim Wentworth (Q3 press release) .
• “We have now completed all of the contract negotiations for calendar 2025… rebalancing brands and generics and carving out new categories for high-cost drugs…” — CEO Tim Wentworth (Q1 call) .
• “We are underway with the sale process for Village Medical while continuing to evaluate the best options for Summit… proceeds to reduce our net debt and improve the health of our balance sheet.” — CEO Tim Wentworth (Q1 call) .
• “On store closures… we’re still on track to close 500 locations during our fiscal year ’25… we expect ~$100M AOI benefit in the year; benefits will scale over time.” — CFO Manmohan Mahajan (Q1 call) .
• “Our MFCs currently serve about 4,800 stores… shipped volumes up 23% YoY… allowing our pharmacists to spend more time on patient care.” — CEO Tim Wentworth (Q1 call) .
• “Walgreens’ network of 12 micro-fulfillment centers now supports over 5,000 stores… ~24% YoY increase in shipped volumes…” — MFC expansion release (May 20, 2025) .

Q&A Highlights

• Reimbursement dynamics: 2025 contracts restructured to reduce reimbursement pressure (e.g., GLP-1 carve-outs, brand/generic rebalance); aim for stability now and improvement over next three years .
• Cost-plus market shifts: Management sees peer moves as consistent with WBA’s approach; willing to align structures with payer needs to achieve sustainable pharmacy economics .
• Store closures and AOI: On track for ~500 closures in FY25, with ~$100M AOI benefit and favorable script retention trends; benefits scale over time .
• Procurement with Cencora: Working toward “world-class” drug procurement; qualitative progress, with the goal of long-term competitiveness, not embedded as a discrete FY25 guidance item .
• Free cash flow: Year-over-year improvement from capex reductions and higher adjusted operating income ex sale-leaseback; still weighed by elevated legal payments; asset monetization provides flexibility .

Estimates Context

• Wall Street consensus (S&P Global) for Q3 FY25 EPS and revenue was unavailable via our S&P Global connection at this time; we could not retrieve WBA’s consensus due to missing CIQ mapping. As a result, we cannot present beat/miss versus consensus for Q3 FY25 using S&P Global data [GetEstimates error].

Key Takeaways for Investors

• Merger path dominates the equity narrative: With a definitive agreement to be acquired by affiliates of Sycamore Partners and no guidance/calls during pendency, regulatory approvals and closing probability/timing are the primary near-term stock catalysts .
• Ops execution bifurcated: U.S. Healthcare turning the corner (positive adjusted OI, EBITDA momentum), and International remains solid, but U.S. front-end retail demand is a persistent drag despite footprint optimization and cost controls .
• Pharmacy backdrop improving structurally: Contracting resets (brand/generic rebalance, high-cost drug carve-outs) should moderate reimbursement pressure relative to past years, but benefits accrue over multiple years and require continued payer alignment .
• Cash flow better but legal outflows remain a headwind near term: Q3 FCF positive ($336M), yet legal payments ($252M in Q3; $1.4B YTD) continue to pressure full-year cash generation; management expects lower legal run-rate beyond FY26 .
• Store closures should support margins and cash: ~500 closures in FY25 expected to add ~$100M to AOI and help working capital/sale proceeds outpace closure costs; script retention thus far better than internal plans .
• Automation as an enabler: Expanding MFC network (>5,000 stores supported) is freeing pharmacist time for higher-value services and supporting throughput; continued scaling is a medium-term lever for service mix/profitability .
• Trading lens: Near term, the stock will likely trade on merger milestones and any incremental disclosures around asset monetization, legal developments, and retail demand stabilization; operational upside likely recognized post-transaction or with clearer visibility on turnaround KPIs .

Notes on non-GAAP: Adjusted results exclude impairment, acquisition-related amortization/costs, legal/regulatory accruals, restructuring (footprint optimization, transformational cost management), LIFO provision, among others, with detailed reconciliations provided in the press materials **[1618921_0001193125-25-147528_d919053dex991.htm:13]** **[1618921_0001193125-25-147528_d919053dex991.htm:19]** **[1618921_a50427ecce024ceaaa8f9807ba637e33_17]** **[1618921_a50427ecce024ceaaa8f9807ba637e33_25]**.

Citations:

• Q3 FY25 8-K and Exhibit 99.1 press release, including consolidated statements and segment detail .
• Q3 FY25 Business Wire press release and supplemental tables .
• Q2 FY25 8-K press release and supplemental data .
• Q1 FY25 8-K press release and earnings call transcript (prepared remarks and Q&A) .
• MFC expansion press release (May 20, 2025) .