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Walgreens Boots Alliance, Inc. (WBA)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 revenue rose 6.0% year over year to $37.55B, while GAAP diluted EPS was -$3.48 due to a $2.3B non-cash valuation allowance and impairments; adjusted EPS of $0.39 fell 41% YoY, in line with company expectations .
  • U.S. Retail Pharmacy remained pressured by reimbursement, brand inflation and mix; International performed steadily; U.S. Healthcare delivered improved profitability with adjusted EBITDA of $65M .
  • FY2025 guidance introduced: adjusted EPS $1.40–$1.80, sales $147–$151B, adjusted operating income $1.6–$2.0B; management announced a footprint optimization program to close ~1,200 stores over three years (500 in FY25), targeting ~$100M AOI benefit in FY25 .
  • Near-term stock narrative catalysts: execution on store closures and working capital/capex reductions, reimbursement contract progress (80% of 2025 script volume visibility), and asset monetization path for VillageMD; dividend held at $0.25 for Dec-2024 but management emphasized pragmatic capital allocation going forward .

What Went Well and What Went Wrong

What Went Well

  • U.S. Healthcare improved: Q4 adjusted operating income of $17M (vs. -$83M LY) and adjusted EBITDA of $65M, driven by Shields growth (+27.8%) and VillageMD cost discipline .
  • Free cash flow strengthened: Q4 FCF of $1.09B, up 98% YoY, aided by working capital initiatives and lower capex/legal payments; capex fell by $239M YoY in Q4 .
  • Boots UK momentum: comparable retail +6.2%, pharmacy +10%, Boots.com sales +19% and 15% of retail sales mix .
  • CEO tone on turnaround focus: “Fiscal 2025 will be an important rebasing year…optimizing our footprint, controlling operating costs, improving cash flow, and continuing to address reimbursement models” (Tim Wentworth) .

What Went Wrong

  • U.S. Retail Pharmacy margins compressed on net reimbursement pressure, brand inflation and mix impacts; retail comps -1.7% and adjusted operating income down 60% YoY to $220M .
  • GAAP results burdened by non-cash charges: $2.3B valuation allowance on deferred tax assets (opioid-related), CareCentrix goodwill impairment, and equity impairment in China led to diluted EPS of -$3.48 .
  • Pharmacy margin headwinds persisted: NADAC fluctuations hurt Q4 by ~$17M; management expects continued pressure and only gradual stabilization through multiyear reimbursement reframing .

Financial Results

MetricQ4 2023Q3 2024Q4 2024
Revenue ($USD Billions)$35.42 $36.35 $37.55
Gross Profit ($USD Billions)$6.48 $6.46 $6.25
Gross Margin % (GAAP)18.3% 17.8% 16.7%
Operating Income (Loss) ($USD Billions)-$0.45 $0.11 -$0.98
Adjusted Operating Income ($USD Millions)$683 $613 $424
Net Income (Loss) Attributable ($USD Billions)-$0.18 $0.34 -$3.01
Diluted EPS (GAAP) ($USD)-$0.21 $0.40 -$3.48
Adjusted EPS ($USD)$0.67 $0.63 $0.39
Free Cash Flow ($USD Billions)$0.55 $0.33 $1.09

Segment breakdown:

SegmentQ4 2023 Sales ($B)Q3 2024 Sales ($B)Q4 2024 Sales ($B)Q4 2023 AOI ($MM)Q3 2024 AOI ($MM)Q4 2024 AOI ($MM)
U.S. Retail Pharmacy$27.67 $28.50 $29.47 $554 $501 $220
International$5.78 $5.73 $5.97 $259 $175 $231
U.S. Healthcare$1.97 $2.13 $2.11 -$83 -$22 $17
U.S. Healthcare Adjusted EBITDA—$23 $65

Key KPIs:

KPIQ4 2023Q3 2024Q4 2024
U.S. Comparable Sales (Total)—+3.5% +8.3%
U.S. Comparable Pharmacy Sales—+5.7% +11.7%
U.S. Comparable Retail Sales—-2.3% -1.7%
Comparable Scripts (ex. immunizations)—+1.7% +2.6%
Prescriptions Filled (30-day equiv., mm)—306.4 302.0
NADAC Impact ($MM)—~20 ~17
Boots.com Share of UK Retail Sales~16% ~16% 15%
Boots.com Sales Growth+13.8% +13.8% +19%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EPS (Non-GAAP)FY2025N/A (new)$1.40–$1.80 Introduced
SalesFY2025N/A (new)$147–$151B Introduced
Adjusted Operating IncomeFY2025N/A (new)$1.6–$2.0B Introduced
U.S. Retail Pharmacy AOI YoYFY2025 MidpointN/A (new)-$1.1B (drivers: sale-leaseback and Cencora share sale headwinds ~40%; reimbursement/retail pressure) Introduced
U.S. Healthcare Adjusted EBITDAFY2025N/A (new)$280–$350M (midpoint +$250M YoY) Introduced
Retail Comparable SalesFY2025N/A (new)-2% to -3% Introduced
Script Market GrowthFY2025N/A (new)2.5%–3%; WBA growth impacted by closures Introduced
VaccinationsFY2025N/A (new)Slightly lower vs FY2024 Introduced
Footprint Optimization AOI BenefitFY2025N/A (new)≈$100M AOI; back-half weighted Introduced
Working Capital InitiativesFY2025N/A (new)≈$500M FCF benefit Introduced
Capex ReductionFY2025N/A (new)≈$150M reduction Introduced
Legal PaymentsFY2025N/A (new)≈$1.50B; decline expected in FY2026 Introduced
DividendDec-2024$0.25/share$0.25/share (unchanged) Maintained

Earnings Call Themes & Trends

TopicQ2 2024 (Mar)Q3 2024 (Jun)Q4 2024 (Oct)Trend
Reimbursement/PBM negotiationsEarly-stage calendar 2025 talks; pushing cost-plus transparency; multi‑year change expected Model not sustainable; active discussions; plan to reset framework; reduced FY2024 EPS and reset expectations ~80% 2025 script volume visibility; willing to walk away from uneconomic networks; expect “lessening” pressure in 2025 Constructive, incremental stabilization over multi‑years
NADAC volatilityNoted headwinds; broader reimbursement issues ~$20M partial quarter impact; remains a guidance uncertainty ~$17M impact; latest data stabilizing; regulators should help Moderating, but remains a risk
Consumer backdrop/retail strategyOwn brands expansion; digital/same‑day delivery; store manager incentives Weak consumer; price/promo investments; shrink pressure; footprint optimization announced conceptually Footprint program: 1,200 closures over 3 years; merchandising refresh, own brands; loyalty/digital push Accelerating store rightsizing and retail modernization
U.S. Healthcare executionFirst positive adjusted EBITDA; VillageMD rightsizing, Shields growth Second consecutive positive EBITDA; continued growth Q4 adjusted EBITDA $65M; FY2025 EBITDA guide $280–$350M Improving profitability trajectory
Asset monetizationCencora share sales; VillageMD impairment; portfolio review underway Plan to simplify; sum-of-the-parts review; potential VillageMD liquidity Committed to monetize noncore assets (VillageMD) methodically; debt reduction focus Active, pragmatic capital allocation
Specialty/pharma servicesBuilding direct/commercialization partnerships; vaccine/test-and-treat initiatives Pharma-service expansion; adherence/value Specialty pharmacy emphasized as core asset; new CCO hire to drive B2B Strategic focus area
Working capital/capexTarget $500M WC, $600M capex cut FY2024 Delivered WC/capex progress; Q3 FCF improved FY2025 WC ≈$500M; capex -$150M; Q4 FCF strong Discipline continuing

Management Commentary

  • “In fiscal 2025, we are focusing on stabilizing the retail pharmacy by optimizing our footprint, controlling operating costs, improving cash flow, and continuing to address reimbursement models… Fiscal 2025 will be an important rebasing year” — Tim Wentworth (CEO) .
  • “We expect to close approximately 1,200 stores over the next 3 years… The economic benefits… should begin to be tangible in fiscal ’25… approximately $100 million of AOI” — Manmohan Mahajan (CFO) .
  • “We are changing the dialogue to ensure we both procure drugs at a fair price and that we are paid fairly for the value that we provide… we will make difficult decisions if a PBM will not provide reasonable reimbursement” — Tim Wentworth .
  • “U.S. Healthcare segment finished ahead of expectations… adjusted EBITDA for the fourth quarter was $65 million, an improvement of $94 million compared to last year” — Manmohan Mahajan .
  • “We intend to further monetize noncore assets… reduce our lease exposure… and address our net debt position” — Tim Wentworth .

Q&A Highlights

  • Reimbursement and network participation: Management sees a “lessening” of reimbursement pressure in 2025, has ~80% contract visibility, and is prepared to exit uneconomic networks to protect economics .
  • Footprint optimization cadence: ~500 closures targeted in FY2025, back-half weighted; expected in-year AOI benefit ≈$100M; recapture of scripts modeled precisely based on store-level dynamics .
  • Free cash flow and legal payments: FY2025 legal payments expected ≈$1.50B (declining in FY2026); working capital ≈$500M and capex -$150M to offset AOI headwinds from sale-leaseback/Cencora earnings .
  • Dividend philosophy: Pragmatic, flexible capital allocation; management will align dividend with long-term earnings power if appropriate, with board engagement .
  • VillageMD monetization: Process continues methodically to preserve value; near-term liquidity supported by noncore asset sales and revolver capacity .

Estimates Context

  • Wall Street consensus estimates via S&P Global were unavailable for WBA due to a data mapping issue at the time of this analysis; the company stated Q4 performance was “in line with expectations,” but we cannot validate beats/misses relative to external consensus without S&P data .

Key Takeaways for Investors

  • FY2025 is a “rebasing” year: expect lower U.S. Retail Pharmacy profitability (AOI down ~$1.1B at midpoint) offset by U.S. Healthcare and International growth; focus on cash flow quality over sale-leaseback/Cencora contributions .
  • Footprint optimization is a material earnings/cash lever: ~1,200 closures (500 in FY25) should drive ~$100M AOI and positive cash (WC and asset sales net of closure costs), with benefits scaling into FY2026–27 .
  • Reimbursement trajectory improving gradually: constructive PBM talks, ~80% script contract visibility for 2025, willingness to protect economics by exiting uneconomic volumes; NADAC volatility moderating but remains a risk .
  • U.S. Healthcare inflecting: Shields strength and VillageMD cost actions support FY2025 adjusted EBITDA guide of $280–$350M; continued asset-light pharma services/specialty expansion is a strategic priority .
  • Cash discipline: FY2025 working capital ≈$500M and capex -$150M; legal cash outflows remain elevated at ≈$1.50B, but expected to decline in FY2026 .
  • Capital allocation flexible: dividend maintained near term ($0.25 in Dec-2024), but management highlighted optionality to align payouts with earnings while prioritizing deleveraging .
  • Trading implications: Near-term stock moves likely keyed to execution on store closures, clarity on reimbursement contract outcomes, and visible progress toward VillageMD monetization and net debt reduction .

Notes

All figures are as reported in company materials; non-GAAP metrics and KPIs are defined and reconciled within the company’s press releases and 8-K materials .