Financial Overview

Walgreens Boots Alliance, Inc. (WBA) is an integrated healthcare, pharmacy and retail leader with operations in the U.S., International, and U.S. Healthcare segments. In fiscal year 2024, the company reported total sales of $147.7 billion, a 6.2% increase compared to the prior year. However, the company recorded a net loss of $8.6 billion, or $10.01 per diluted share, compared to a net loss of $3.1 billion, or $3.57 per diluted share, in the previous year.

The significant net loss in fiscal 2024 was primarily driven by a $12.4 billion non-cash impairment charge related to the goodwill of the company’s VillageMD business, as well as a $2.2 billion non-cash charge to record a valuation allowance on certain U.S. and state deferred tax assets. The company also incurred $12.7 billion in total impairment charges related to goodwill, intangibles, and long-lived assets across its business segments.

Segment Performance

The company operates through three reportable segments:

U.S. Retail Pharmacy

• Sales increased 5.0% to $115.8 billion, driven by an 8.2% increase in pharmacy sales.
• Comparable pharmacy sales increased 9.8%, while comparable retail sales decreased 3.4%.
• Adjusted operating income decreased 41.3% to $2.2 billion due to lower pharmacy and retail gross profit, lower sale-leaseback gains, and lower equity income from Cencora.

International

• Sales increased 6.1% to $23.6 billion, with a 3.2% increase on a constant currency basis.
• Comparable retail sales in constant currency increased 6.5%, while comparable pharmacy sales in constant currency increased 4.9%.
• Adjusted operating income decreased 15.2% to $793 million, primarily due to real estate gains in the prior year and higher inflation and IT investment in the UK.

U.S. Healthcare

• Sales increased $1.8 billion to $8.3 billion, driven by the acquisition of Summit by VillageMD and growth in VillageMD and Shields.
• Adjusted operating loss improved to $134 million, compared to a loss of $566 million in the prior year, due to cost discipline at VillageMD and growth from Shields.
• The segment recorded a $12.4 billion non-cash impairment charge related to VillageMD goodwill and a $332 million non-cash impairment charge related to CareCentrix goodwill.

Strategic Initiatives

In fiscal 2024, the company initiated a strategic and operational review of its business, focusing on areas that build its core retail and specialty pharmacy business, leverage its current assets through capital-efficient businesses, and expand its relationships with business partners.

Key strategic initiatives include:

• Implementing a significant multi-year U.S. Footprint Optimization Program to close 900 to 1,000 underperforming stores, primarily in the U.S.
• Launching a U.S. Retail Pharmacy action plan to invest in and deliver an improved customer and patient experience, adjust pricing and promotional strategies, and re-evaluate the sales and merchandising strategy.
• Stabilizing pharmacy margins by collaborating and negotiating with pharmacy benefit managers (PBMs).
• Aligning the U.S. Pharmacy and Healthcare organizations for enhanced go-to-market capabilities.
• Re-evaluating capital allocation priorities, including an assessment of the dividend policy.
• Continuing to focus on monetizing non-core assets, such as the company’s investment in Cencora.
• Simplifying and focusing the U.S. Healthcare portfolio, including evaluating options for the VillageMD business.

Opioid Litigation Settlements

In December 2022, the company entered into a Multistate Settlement Agreement to resolve a substantial majority of opioid-related lawsuits. As of August 31, 2024, the company has accrued a total of $6.6 billion in liabilities associated with the Multistate Agreement and other opioid-related claims and litigation settlements.

Transformational Cost Management Program

The company’s Transformational Cost Management Program, which was launched in 2018, achieved its goal of $4.5 billion in annual cost savings by the end of fiscal 2024. The program resulted in the closure of 624 Boots stores in the UK and 676 stores in the U.S. The company incurred cumulative pre-tax charges of $4.3 billion related to the program, primarily for lease obligations, asset impairments, and employee severance and business transition costs.

Footprint Optimization Program

In October 2024, the company’s Board of Directors approved a new Footprint Optimization Program to close an additional 900 to 1,000 underperforming stores, primarily in the U.S. The company estimates it will incur cumulative pre-tax charges of $2.2 billion to $2.4 billion related to this program, including costs associated with lease obligations, asset impairments, and employee severance.

Liquidity and Capital Resources

The company’s cash, cash equivalents, marketable securities, and restricted cash totaled $3.2 billion as of August 31, 2024, compared to $856 million in the prior year. The company reduced net debt by nearly $2.0 billion and lease obligations by over $1.0 billion in fiscal 2024.

In fiscal 2024, the company paid $435 million towards its commitment to contribute $970 million to $1.0 billion to the Boots Pension Plan to fund the purchase of a bulk annuity policy. The remaining amount is expected to be paid within the next two years.

The company’s long-term capital policy is to maintain a strong balance sheet and financial flexibility, reinvest in its core strategies, invest in strategic opportunities, and return surplus cash flow to shareholders through dividends and share repurchases. In fiscal 2024, the company announced a 48% reduction in its quarterly dividend to $0.25 per share to strengthen its balance sheet and cash position.

Key Performance Indicators

The company considers certain metrics to be key performance indicators, including:

• Comparable sales (in constant currency)
• Comparable pharmacy sales (in constant currency)
• Comparable retail sales (in constant currency)
• Comparable number of prescriptions
• Comparable 30-day equivalent prescriptions

These metrics provide insights into the company’s core operating performance and trends in its historical results.

Conclusion

Walgreens Boots Alliance faced significant challenges in fiscal 2024, including large impairment charges, opioid-related litigation settlements, and a strategic review of its business. The company’s U.S. Retail Pharmacy and International segments experienced declines in adjusted operating income, while the U.S. Healthcare segment showed improvement despite the substantial goodwill impairment charges.

The company’s strategic initiatives, including the Footprint Optimization Program and efforts to stabilize pharmacy margins, are aimed at improving the company’s long-term performance and positioning it for sustainable growth. However, the company’s financial results in fiscal 2024 highlight the need for the company to execute on these strategic priorities and address the operational and financial headwinds it has faced.