Walgreens Boots Alliance : 2025 Transcript Q1

Published: 2025-01-15 04:14:04 ET WBA

REFINITIV STREETEVENTS

EDITED TRANSCRIPT

WBA.OQ - Q1 2025 Walgreens Boots Alliance Inc Earnings Call

EVENT DATE/TIME: JANUARY 10, 2025 / 1:30PM GMT

OVERVIEW:

Company Summary

REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us

©2025 Refinitiv. All rights reserved. Republication or redistribution of Refinitiv content, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

JANUARY 10, 2025 / 1:30PM, WBA.OQ - Q1 2025 Walgreens Boots Alliance Inc Earnings Call

C O R P O R A T E P A R T I C I P A N T S

Eric Wasserstrom Walgreens Boots Alliance Inc - Senior Vice President, Investor Relations

Timothy Wentworth Walgreens Boots Alliance Inc - Chief Executive Officer, Director

Manmohan Mahajan Walgreens Boots Alliance Inc - Global Chief Financial Officer, Executive Vice President

C O N F E R E N C E C A L L P A R T I C I P A N T S

Lisa Gill JPMorgan Chase & Co - Analyst

Eric Percher Nephron Research LLC - Analyst

Charles Rhyee TD Cowen - Analyst

Michael Cherny Leerink Partners LLC - Analyst

Kevin Caliendo UBS Investment Bank - Analyst

Elizabeth Anderson Evercore ISI - Analyst

Ann Hynes Mizuho Securities USA Inc. - Anlayst

George Hill Deutsche Bank AG - Analyst

Brian Tanquilut Jefferies - Analyst

P R E S E N T A T I O N

Operator

Good day, and thank you for standing by. Welcome to Walgreens Boots Alliance first-quarter results conference call. (Operator Instructions) Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Eric Wasserstrom, Senior Vice President of Investor Relations. Please go ahead.

Eric Wasserstrom - Walgreens Boots Alliance Inc - Senior Vice President, Investor Relations

Good morning and thank you for joining us for the Walgreens Boots Alliance earnings call for the first quarter of fiscal year 2025. I'm Eric Wasserstrom, Senior Vice President of Investor Relations. Joining me on today's call are Tim Wentworth, our Chief Executive Officer; and Manmohan Mahajan, Global Chief Financial Officer.

In addition, Mary Langowski, Executive Vice President and President of Walgreens Health; Rick Gates, Senior Vice President and Walgreen's Chief Pharmacy Officer; and Tracey Brown, President of Walgreens Retail and Chief Customer Officer, will participate in Q&A.

As always, during the conference call, we anticipate making projections and forward-looking statements based on our current expectations. Our actual results could differ materially due to a number of factors including those listed on slide 2 and are outlined in our latest form 10-K filed with the Securities and Exchange Commission.

We undertake no obligation to publicly update any forward-looking statement after this presentation, whether a result of new information, future events, changes in assumptions or otherwise. You can find our press release and slides referenced in this call in the investor relations section of the Walgreens Boots Alliance website.

During this call, we will discuss certain non-GAAP financial measures. These measures are reconciled to the most directly comparable GAAP financial measures and the reconciliations are set forth in the press release. You may also refer to the slides posted in the investors section of our website

REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us

JANUARY 10, 2025 / 1:30PM, WBA.OQ - Q1 2025 Walgreens Boots Alliance Inc Earnings Call

for reconciliations of non-GAAP measures to the most comparable GAAP measures discussed during this earnings call. We encourage you to review the comparable GAAP measures and reconciliation to non-GAAP values in the other earnings materials we provided. I will now turn the call over to Tim.

Timothy Wentworth - Walgreens Boots Alliance Inc - Chief Executive Officer, Director

Thanks, Eric, and good morning, everyone. We've started the fiscal year by making progress against our financial and strategic priorities despite the challenging backdrop for our consumer. Our operating earnings in the period were driven by cost management initiatives and relative strength in our US pharmacy services businesses, offsetting weakness in our front-end retail business as we work to respond to changing consumer behavior.

Among the outcomes we achieved this quarter in US pharmacy, we maintained script market share. Our international business continued to show strong returns, and our US healthcare segment contributed somewhat above expectations on a combination of revenue growth and cost control. Importantly, we started to progress on the opportunities that we consider essential to our longer-term turnaround.

At the end of fiscal 2024, we identified four areas of long-term focus. And one quarter into the current financial year, we are executing against these targets. Let me spend a few minutes walking through each.

The cornerstone of our turnaround is stabilizing the US retail pharmacy business, and we showed progress across several key planks of this plan. We've begun our Footprint Optimization Program and are pleased with the early results.

We're currently exceeding historical script retention rates and have retained the majority of store and pharmacy team members. We expect to significantly ramp the pace of our store closures from the first quarter level. As a reminder, we have a lot of experience with store closures having closed about 2,000 locations over the past decade.

That said, to handle the stepped-up pace for the next three years, we've assembled a dedicated team to focus exclusively on the end-to-end process to improve upon our historical results. This team has already sequenced the next approximately 450 store closures. And at this point, we have a high degree of confidence in the execution of this process through the end of 2025.

Naturally, we expect our future footprint to support stronger performance. Currently, we see comparable front-end sales in our retained store fleet outperforming those stores slated to close this year by approximately 250 basis points and comparable pharmacy scripts by approximately 390 basis points.

To be clear, even within our future footprint, we have to execute on our longer-term merchandising and consumer engagement initiatives in order to grow. However, this data supports our view that the smaller footprint will be a healthier one for our company.

Also, critical to our retail turnaround is our employee experience. Across the enterprise, we are refining the way we forecast, allocate, and schedule labor in our stores. Beginning with about 200 stores this month, we're launching new scheduling optimization logic to better deliver on the in-store experience for our customers, patients, and team members.

The solution deploys labor based on store-specific demand patterns, while also accounting for team member availability and preferences. We've received positive feedback from our initial pilot and are excited to roll this logic out to the chain later this year.

Winning in pharmacy requires superb operating leverage, so we are also taking steps to improve our pharmacy operations. You may remember at the start of last year, we talked about a pause in rollout of our micro fulfillment centers to optimize productivity and better engineer our patient and team member experience. This work has yielded successful results.

Our MFCs currently serve about 4,800 stores. And shipped volumes from these centers are up 23% year-on-year, while [cost of fill] was down by 13%. These improvements allow our pharmacists to spend more time on patient care and clinical services, expanding the critical role they provide.

REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us

JANUARY 10, 2025 / 1:30PM, WBA.OQ - Q1 2025 Walgreens Boots Alliance Inc Earnings Call

For example, stores supported by MFCs were able to administer more vaccines and complete more medication therapy management for our patients, payers, and B2B customers. Looking forward, there's still more work to do to expand this across our national footprint and further lower our operating costs on a per script basis.

In addition to improving our pharmacy operating model, a key priority has been to reframe the reimbursement discussion with our partners to focus on fair value for our services. As an update to last quarter, we have now completed all of the contract negotiations for calendar 2025, and the nature of these conversations has evolved.

We've had success in adjusting contract dynamics in our negotiations with our commercial, Medicare, and Medicaid plans, such as rebalancing brands and generics and carving out new categories for high-cost drugs, all in response to the evolving needs of customers and to better align reimbursement with our cost of goods.

We are also expanding discussions about being compensated for additional services beyond dispensing and promoting alternative payment models. Notwithstanding our progress, there's still much more that needs to be done over the next several years. Our goal is to serve as many patients and communities as possible, but this is dependent on being reimbursed fairly so that we can maintain our presence as a healthcare provider across the country.

It is also our goal to become a market leader in drug procurement. We are working to ensure that we're procuring drugs at the most competitive price and continue to engage with our partners at Cencora. We are making incremental progress in these discussions as we work towards a more acceptable long-term solution.

Turning now to our third priority, the turnaround of our consumer retail business. This has been made more challenging by the persistent deterioration in consumer discretionary spending. Our consumer remains under pressure from accumulated inflation and higher interest rates, and we are seeing continued value-seeking and channel-shifting behavior.

Additionally, the warmer season impacted our first-quarter results with reduced respiratory incidences and the associated baskets with those trips, contributing to about half of our retail decline versus last year. As we look to effectuate a broader repositioning of our retail business, we're responding to these conditions in real time.

Some of our actions like recent changes in our targeted approach to managing store inventory have been successful, and our in-stock rate is the highest it's been in over four years. We are also modernizing the tools we use for assortment optimization to have the right item in the right store to create a customer-centric assortment.

We began to introduce new products as a part of our health and well-being focused growth strategy, specifically in categories such as women's wellness, super foods, and sports nutrition. We also continue to pursue own brand penetration, which is up 75 basis points in the first quarter to 17.8%.

Coming into this year, we targeted introducing about 300 new own brand products and have introduced approximately 60 in the first quarter. As it relates to the evolution of our consumer experience, we are further leveraging our omnichannel capabilities such as home delivery and virtual care to meet evolving consumer preferences.

Walgreens has offered same-day prescription delivery nationwide for more than three years and delivery within two hours from approximately 800 stores. We also offer virtual care in 30 states available to nearly 90% of the US population. While we expect home delivery to continue to grow across retail and healthcare, we view it as one component of many touch points with our customers, including in-store, drive-thru, and online.

In summary, we are progressing a number of elements of our retail strategy. While we are seeing early green shoots, we still have substantial work to do here.

REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us

JANUARY 10, 2025 / 1:30PM, WBA.OQ - Q1 2025 Walgreens Boots Alliance Inc Earnings Call

Turning to our non-core assets. We are underway with the sale process for village medical while continuing to evaluate the best options for Summit/CityMD. We are encouraged by the leadership of new CEO, healthcare veteran, Jim Murray.

To be clear, our ultimate intent to exit is unchanged. And we remain committed to redeploying any proceeds to reduce our net debt and improve the health of our balance sheet. Importantly, we improved free cash flow this quarter with decreased capital expenditures and higher adjusted operating income, excluding the noncash impact of sale-leasebacks.

Longer-term generation of positive cash flow remains a key priority for us in the context of litigation, opioid payments, debt, and our current dividend. Continued progress on cash flow will require meaningful action and focus.

In conclusion, we've shown progress on our priorities over the past quarter. And while we have a lot of work ahead of us, this progress underpins our belief in delivering a successful turnaround. I will now turn it over to Manmohan to review our financial results.

Manmohan Mahajan - Walgreens Boots Alliance Inc - Global Chief Financial Officer, Executive Vice President

Thank you, Tim, and good morning, everyone. Overall, first-quarter results were better than our expectations. Sales increased 6.9% on a constant currency basis with growth across all segments.

Adjusted EPS of $0.51 declined 23% year over year and on a constant currency basis. This decline was entirely driven by prior year sale-leaseback gains and lower Cencora equity income. Absent these two factors, continued cost discipline in US retail pharmacy and growth across US healthcare and international businesses were partly offset by challenging US retail market trends.

GAAP net earnings for the first quarter included after-tax charges of $252 million related to Footprint Optimization Program and $152 million non-cash charge related to fair value adjustments on variable prepaid forward derivatives related to monetization of Cencora shares.

Now, let me cover US retail pharmacy segment. Comparable sales grew 8.5%, driven by pharmacy and partly offset by a decline in retail sales. The Footprint Optimization Program negatively impacted total sales during the quarter.

AOI decreased 36% versus the prior year quarter, including $184 million headwind related to prior year sale-leaseback gains and lower Cencora equity income. Absent these impacts, AOI declined due to lower retail sales, partly offset by continued cost discipline.

Despite the $160 million headwind from prior year sale-leaseback gains, adjusted SG&A was flat to last year. This cost improvement was largely driven by our initiatives to modernize our store-level demand forecasting and labor deployment tools.

Let me now cover US pharmacy. Pharmacy comp sales increased 12.7%, driven by brand inflation and script volume, partly offset by lower vaccine volume. Comp scripts, excluding immunizations, grew 3.5% in the quarter, and we held script market share. Pharmacy services performed better than our expectations during the quarter as higher margin for COVID-19 vaccines was offset by the lower overall vaccine market volume due to the weaker cough, cold, and flu season.

Pharmacy adjusted gross margin declined versus the prior year quarter, negatively impacted by brand inflation and mix impacts and net reimbursement pressure. NADAC changes in November did not have any material impact to the gross profit in the quarter.

Turning next to our US retail business. Comparable retail sales declined 4.6% in the quarter, which was lower than our expectations. There are two key drivers. Third-party data shows flu, cold, and respiratory activity over 40% lower compared to the prior year, which paired with the warm weather through November led to a much softer cough, cold, and flu season. This dynamic negatively impacted comparable retail sales by approximately 270 bps in the quarter, including the impact from the attached basket, which was about half of the comp sales decline.

REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us

JANUARY 10, 2025 / 1:30PM, WBA.OQ - Q1 2025 Walgreens Boots Alliance Inc Earnings Call

Second, the consumer backdrop also remains difficult with the promotional environment and continued channel shift, impacting our discretionary categories. Retail adjusted gross margin declined year over year, negatively impacted by pricing and promotions as well as lower sales related to cough, cold, and flu.

Turning next to international segment, and as always, I will talk in constant currency numbers. Total sales grew 6.5% with Germany wholesale increasing 11.3% and Boots UK up 4.5%. Segment adjusted gross profit increased 3% with growth across all businesses. Adjusted operating income was up 16%, led by a strong retail performance in Boots UK and growth in Germany, partly offset by cost inflation and technology investments.

Let's now cover Boots UK in detail. Boots UK continues to perform well. Comp retail sales increased 8.1% with gains across all categories. Boots.com sales increased 23% year on year, aided by a strong Black Friday performance and represented 22% of our UK retail sales.

Turning next to US healthcare. Sales of $2.2 billion increased 12% compared to the prior year quarter. VillageMD sales of $1.6 billion grew 9% year on year despite the impact of clinic closures. The increase was driven by growth in full risk lives and fee-for-service revenue.

Shields sales were up 30% driven by growth within existing partnerships. Adjusted EBITDA for the first quarter was $70 million, up sequentially and an improvement of $109 million compared to last year, reflecting the growth at VillageMD and Shields.

Turning next to cash flow. Operating cash flow in the quarter was negatively impacted by the seasonal inventory build in the US, UK and Germany and legal payments of $137 million. Year over year, free cash flow improvement benefited from decreased capital expenditures and higher adjusted operating income, excluding sale-leaseback, which does not impact free cash flow.

We remain on track to achieve $500 million in working capital initiatives and are currently ahead of our target for a $150 million reduction in capital expenditures. While we do see opportunity for further reduction in CapEx, we have plans for investment later this year in our stores and technology to support them.

During the first quarter, we reduced our lease obligations by $652 million. We remain committed to improving our cash flow generation and net debt position through a combination of operational actions and asset monetization activities. As Tim alluded to, we also continue to evaluate the appropriateness and size of our dividend as part of our capital allocation policy.

Our priority for fiscal 2025 is to stabilize our core performance, while we make progress on the longer-term strategic and operational turnaround. Our progress to date is reflected in our reaffirmed adjusted EPS guidance of $1.40 to $1.80.

We continue to execute on cost savings inclusive of our Footprint Optimization Program. We continue to expect $100 million in AOI benefit from Footprint Optimization Program with working capital benefits and sale proceeds from own locations significantly higher than cash closure costs.

We are also encouraged by pharmacy services results to date. We believe the impact of lower than originally expected vaccines volume to be offset by higher margin on COVID vaccines.

The recently announced NADAC changes are expected to be less than a $50 million negative impact on pharmacy margin for the remainder of the year versus our original expectations. However, as we think about rest of the year, there remains certain risks to our outlook as well. The weaker cough, cold, flu season and continued challenging consumer discretionary spending are impacting our retail sales in the US.

We now expect retail comp sales for fiscal '25 to decline approximately 4% to 5% compared to our prior outlook of down 2% to 3%. While the first quarter results are encouraging, we are maintaining our guidance range considering the challenging US retail environment. With that, let me pass it back to Tim.

REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us

JANUARY 10, 2025 / 1:30PM, WBA.OQ - Q1 2025 Walgreens Boots Alliance Inc Earnings Call

Timothy Wentworth - Walgreens Boots Alliance Inc - Chief Executive Officer, Director

Thanks, Manmohan. Before I open the call up for Q&A, let me leave you with a few closing thoughts. Our first-quarter results demonstrate that we are executing against our long-term strategic priorities. Importantly, we believe our approach to 2025 payer contracting supports our expectation for future stabilization in our pharmacy business, and we're still in early stages of getting to a better outcome on our drug procurement costs.

We're also executing on items that are in our control. Our initial wave of store closures has performed better than expected on multiple facets, including script retention and employee engagement. This gives us increased confidence in our centralized, deliberate approach to this process.

Also fundamental to our turnaround is financial discipline. While we are pleased with our first-quarter results, there is more work to be done as we aim to strengthen our balance sheet and to ensure longer-term positive cash flow generation.

We remain committed to achieving a retail pharmacy led turnaround underpinned by a sustainable economic model. Our turnaround will take time, but as the quarter's results demonstrate, we are executing with urgency and believe the actions we're taking will be the basis for sustained value creation over the long term. With that, let's take questions. Operator?

Q U E S T I O N S A N D A N S W E R S

Operator

(Operator Instructions) Lisa Gill, JPMorgan.

Lisa Gill - JPMorgan Chase & Co - Analyst

Thanks for taking the question. Tim, I'm encouraged by the comments that you made around the levers to lessen reimbursement risk and the fact that contracts for 2025 are done. But can you maybe just give us a little bit more color on, one, what does that new reimbursement look like?

And two, when I think about contracts are generally three years in length. So should I be thinking that for calendar '25, it's roughly one-third of your book of business that has some type of new reimbursement metrics that are tied to reimbursement? That would be the first thing.

And then secondly, just really want to understand the script retention. You talked about script retention being better than expected. Can you maybe just give us a number around that?

Timothy Wentworth - Walgreens Boots Alliance Inc - Chief Executive Officer, Director

Sure. Thanks, Lisa. So the new reimbursement -- actually, let me answer the other part of your question first, which is you're correct that the arrangements that we have with PBMs typically are multiyear. It doesn't mean that we don't, by the way, come back to the table and open them up in response to opportunities or changes in the market.

But generally so, we haven't said exactly what percentage it is, but it was a meaningful percentage. So your number, broadly speaking, is probably about right.

And in terms of what the actual arrangements themselves, how they've evolved, and what they look like, I think what you've seen is a couple of things. One is we've been successful in aligning with PBMs to create a category for higher cost drugs, for example, where in the past, those drugs would fall into the basic reimbursements, and they were massively insufficient in certain cases.

REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us

JANUARY 10, 2025 / 1:30PM, WBA.OQ - Q1 2025 Walgreens Boots Alliance Inc Earnings Call

We've highlighted GLP-1s as an example. And so that's one of the things that we've done in many of the contracts. In other contracts, what we've seen is rebalancing of brands and generics to more appropriately sort of reflect the environment today, both in terms of the absolute environment and how it's going to be evolving.

Because if you really take a look back, and I know I've spoken about this before, what you had was essentially us performing well on generics, but it being insufficient to offset the less than our acquisition cost, brand drug reimbursements or/and are less than cost to deliver services. And so we've been able to, in many of the contracts, again, rebalance.

And so what I'd say is each contract we've come to the table to be creative, and we have found good receptivity. We still have a ton to do, let's be very clear because what you just said indirectly is we have two-third of our contracts left. The good news is many of those are with some of the same payers that we've had success with this year, aligning on going forward.

In terms of the script retention, we haven't given a number on that, but we do track it internally. And again, it has been much better than our underlying assumption in those stores that we've been closing.

I would point out, we closed about 70 stores in the quarter. We have a lot left to do this year. But we have a very different process. It has been definitely pushed through our receiving stores so that the patient experience when their store is closing is meaningfully different as they come into a new store. And all of this really drives to longer-term pivoting to profitability in the back of our stores.

Obviously, other services such as vaccines, adherence programs, other things we may do for pharma or for payers will be incremental to that. But in the current short term, the things that we've done have put us in the position we wanted to be in at this point.

Operator

Eric Percher, Nephron Research.

Eric Percher - Nephron Research LLC - Analyst

I'd like to stay on the same subject, Tim. And I guess what I'd ask is when you look at the type of pressure that you're facing in reimbursement in 2025, are you finding that the actions you've taken are leading to an absolute improvement -- reduction in the pressure in '25 versus what you saw the last couple of years? Or has your focus been on changing terms and contracting in a way that leads to stability today and really positions you for better visibility and the improvement comes in future years?

Timothy Wentworth - Walgreens Boots Alliance Inc - Chief Executive Officer, Director

The answer is both. So there's no question that restructuring our contracts to be, I'll call it future proofed or at least more resistant to the inordinate shifting of risk to us that was simply we had no levers to manage, to be frank, was really, really important.

And again, I think the good news is that our PBM and payer partners also saw that. And in many cases, their markets are sort of looking for these same sort of changed terms in terms of unraveling the cross subsidization that has just gotten so distorted.

And so from that standpoint, the construct is important. Also though, in 2025, and of course, we're in the very early days of calendar 2025, setting aside our fiscal calendar, we are now fully in those contracts that were redone. And our projections are -- continue to be that we see a reduced pressure than we have seen in the past. That is a continuation of several years. And the number that we achieved in these negotiations was pretty darn close to what we had set out as our goal to experience.

And again, I would remind you that in the context of what we have said is over the next three years, this being the first of three that we expect to reach a place where what we are taking out of the market in terms of increased value, whether that's new generics or other things, that we would

REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us

JANUARY 10, 2025 / 1:30PM, WBA.OQ - Q1 2025 Walgreens Boots Alliance Inc Earnings Call

not be giving more than that. And ideally then we would be subjected to being able to collect on other services and other things that we do to improve profitability in the back of the store.

So we have continued to set the stage for that. 2024 was a very important year for it, and we are very pleased with that start on the three-year process.

Operator

Charles Rhyee, TD Cowen.

Charles Rhyee - TD Cowen - Analyst

Yeah. Thanks for taking the questions. Tim, I hear everything that you're saying. And it sounds like you are definitely making progress here, particularly in the contracting side. But typically, I would assume that a lot of these are for one-one starts for the calendar '25 year.

Given sort of the strength in the fiscal first quarter, any reason not to think that we would see the incremental sort of positive step changes as we move through the rest of this year along with the fact that we're still at the early part of the store closure cycle and yet you still maintain guidance.

Can you help us square that a little bit? I understand trying to -- there's still some uncertainty here, but the sort of the outperformance in the first quarter that suggest, particularly on the pharmacy side, that things are at least moving in the right direction relative to at least where the initial guidance was set. Thanks.

Timothy Wentworth - Walgreens Boots Alliance Inc - Chief Executive Officer, Director

Sure. Thanks, Charles. So what I'd point out is that the first quarter, which, as you correctly say, did not -- was not impacted by any of the 2025 contracts that we were able to negotiate, it was strong for two fundamental reasons. One is we had good pharmacy volumes; and two is we had good -- in terms of pharmacy services, particularly vaccines, we have good reimbursement.

And so those two things were strong in the quarter. And we -- what you've seen is part of those volumes is closing stores, we were successful in beating our own targets in moving patients into the receiving stores. So that was good. We closed stores, and we didn't just give up share.

And again, while the vaccine volumes haven't been quite as strong as we might have expected, the fundamental fact of the matter is that we were reimbursed pretty fairly for those vaccines, and we were very successful in getting patients who came into our store to nearly, I think, 40% of the time or thereabouts actually co-administer multiple vaccines to keep themselves safe across several disease platforms.

So that all was what carried the quarter. Therefore, as I look at our full year '25, what we see based on the contracts results that we've had so far, and again, there will be some perturbation because of mix of -- or did you get as many patients as you thought with some new business that may have been won, but those are generally small impacts; we would expect to continue to see what we wanted to see in 2025 and nothing incremental to that in terms of things. So we see it being better than it was in '24, but we ended '24 strong because of some things that didn't have to do with PBM reimbursement.

Operator

Michael Cherny, Leerink Partners.

REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us

JANUARY 10, 2025 / 1:30PM, WBA.OQ - Q1 2025 Walgreens Boots Alliance Inc Earnings Call

Michael Cherny - Leerink Partners LLC - Analyst

Good morning and thanks for taking the question. Maybe if I can build a little bit on Charles' question there relative to the changing dynamics of the business. Tim, you spent a lot of time on the reimbursement side.

Maybe if we can go back to the procurement side and the work you're doing with Cencora. What does that look like qualitatively in terms of making sure that you're maximizing your procurement, especially for a partner that you've had for more than a decade? And specifically within the guidance, are there any changes to procurement that are built into your current fiscal '25 expectations?

Timothy Wentworth - Walgreens Boots Alliance Inc - Chief Executive Officer, Director

Yeah. So we haven't -- let me start with the second question, which is that we haven't broken down in our guidance what would be contributed by any improvements that we make in our process or our underlying contract with Cencora.

That said, you asked about qualitative sorts of things. What I would tell you is qualitatively, there's a question of having a partner who sits down with us, and we have made very clear what our long-term aspiration is, which is to be world-class at buying drugs. And today, we're not.

And so from that -- and they are in a position to help us and to benefit from that when our volumes increase because we're able to be more competitive in our underlying business model. And so from that standpoint, what I would tell you is we have relationships with their team.

We have spent a lot of time together. We continue to spend time together to navigate a way forward that not only helps us in the short term incrementally but more importantly, transformationally, in the long term, modernizes the way that we buy drugs in a way that keeps us very competitive and growing, which is good for both parties. And I'm pleased that we've had the discussions we've had. We have a lot more work to do.

Operator

Kevin Caliendo, UBS.

Kevin Caliendo - UBS Investment Bank - Analyst

Thanks for taking my question. First, just on the footprint optimization. Is that number going to grow over time? Like how do we think about that as the store closings increase?

Is it a forward look as to where we are? Is that like your projection is this $331 million projection? Or is that like point in time and as the stores keep going, that optimization add-back grows?

And then I guess my second question is, your peer announced that they had put in their sort of cost-plus model successfully across their 2025. As you see that happening, is there opportunity for you guys? Is that a pivot for the market that maybe can be advantageous to you?

I know you're renegotiating all your contracts; you did that already. I'm just wondering if this changes the market in any way, shape, or form positively or negatively for you. Thanks.

Timothy Wentworth - Walgreens Boots Alliance Inc - Chief Executive Officer, Director

Yeah. Thanks. Let me take the second half of your question first, which is, obviously, we're always pleased when we can see the market moving in direction that is rational for us in the role that we play. And so CVS' announcement -- well, I'm not going to comment specifically on details with that.

REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us

Disclaimer

Walgreens Boots Alliance Inc. published this content on January 15, 2025, and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on January 15, 2025 at 09:13:03.010.