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Walgreens slashes dividend, Q1 results beat analyst expectations

The retailer cut its shareholder dividend by almost half to 25 cents per share in an attempt to bolster its cash position

Walgreens Boots Alliance beat Wall Street’s first-quarter expectations on both top and bottom lines and kept its full-year earnings guidance. But the company also cut its shareholder dividend by almost half to 25 cents per share in an attempt to bolster its cash position.

First quarter sales for the retailer increased 10% from the year-ago quarter to $36.7 billion. The sales boost marked an increase of 8.7% on a constant currency basis, and the majority of that sales growth was in U.S. retail pharmacy and international segments, as well as sales contributions from the company's U.S. healthcare segment.

Walgreens’ first quarter operating loss was $39 million compared to an operating loss of $6.2 billion in the year-ago quarter. 

The year-over-year improvement on that operating loss is due to lapping the $6.5 billion pre-tax charge for opioid-related claims and litigation recorded in the year-ago quarter, the company says. 

Adjusted operating income was $687 million, a decrease of 33% on a constant currency basis reflecting softer U.S. retail market trends, partly offset by improved profitability in U.S. healthcare and international growth.

Walgreens CEO Tim Wentworth said:

“WBA delivered fiscal first quarter results in line with overall expectations, reflecting disciplined execution in a challenging consumer backdrop. We are evaluating all strategic options to drive sustainable long-term shareholder value, focusing on swift actions to right-size costs and increase cash flow, with a balanced approach to capital allocation priorities.”

The U.S. retail pharmacy segment had first quarter sales of $28.9 billion, an increase of 6.4% from the year-ago quarter. Comparable sales increased 8.1% from the year-ago quarter.

Pharmacy sales increased 10.7% compared to the year-ago quarter. Comparable pharmacy sales increased 13.1%  in the quarter compared to the year-ago quarter, benefiting from higher branded drug inflation and strong execution in pharmacy services. Comparable prescriptions filled in the first quarter increased 1.3% from the year-ago quarter while comparable prescriptions excluding immunizations increased 1.8%, impacted by lower market growth due to a weaker flu and respiratory season, and Medicaid redeterminations. 

Total prescriptions filled in the quarter, including immunizations, adjusted to 30-day equivalents was 311.6 million, flat versus the prior year quarter.

Retail sales decreased 6% and comparable retail sales decreased 5% compared with the year-ago quarter, reflecting macroeconomic-driven consumer trends, a 160 basis point direct impact from a weaker flu and respiratory season, and Thanksgiving holiday store closures.

Adjusted operating income decreased 37.2%  to $694 million compared to $1.1 billion in the year-ago quarter, reflecting a weaker flu and respiratory season, lower retail sales, and continued pharmacy reimbursement pressure net of procurement savings, partly offset by execution in pharmacy services and cost savings.

Net loss in the first quarter was $67 million compared to a net loss of $3.7 billion in the year-ago quarter. Net loss in the first quarter included a $278 million after-tax charge for fair value adjustments on financial derivatives related to forward sale of Cencora shares. Year-over-year improvement in net loss is primarily driven by higher operating income, partially offset by lapping the $0.9 billion post-tax gain from the partial sale of the company’s equity method investment in Cencora in the year-ago quarter. 

Adjusted net earnings decreased 43.1% to $571 million, down 43.7% on a constant currency basis, reflecting lower adjusted operating income and a higher adjusted effective tax rate primarily due to lapping of a valuation allowance release related to capital loss carryforwards in the year-ago quarter.

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