WBA - Earnings call transcript Q3 2019 | Walgreens Boots Alliance, Inc.

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Operator

Good morning. My name is Jessa and I will be your conference operator today. At this time, I would like to welcome everyone to the Walgreens Boots Alliance Inc.

Third Quarter 2019 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. there a remarks, session. speakers’ the will question-and-answer be After [Operator you. Instructions] Thank

your you Gradwell, Gerald conference. may Mr. begin

Gerald Gradwell

Good morning, with Officer Co-Chief gentlemen, Officer Global call. and Executive ladies Chief and Alliance Chairman of of I quarter our Vice of and James President am Walgreens earnings Walgreens third Financial Boots Boots here Kehoe, Chief Officer; Operating today and Stefano Alliance; our and Pessina, Walgreens. Executive welcome our to Gourlay, Alex

opening made to and harbor that actual over future will, results Stefano Certain you in based competitive comments, hand regulatory some are through safe expectations I usual, that make to vary legal statements I and could cause materially. and to constitute this you uncertainties take Before results forward-looking are statements of as to declarations. and and the projections market on our current subject presentation cautionary risks

obligation any latest whether of forward-looking to extent in as undertake and required by factors the events, our future otherwise. result this assumptions, for a presentation, XX-Q to we XX-K risk law, they after changes or publicly statements. Please to no as relate new information, statements see Except Form update of a discussion the forward-looking

directly refer will GAAP non-GAAP use most In presentation today's presentation, financial we the information. financial you measures. measures related appendix available our comparable certain reconciliations Investor the for to We on to and materials the in Relations website

will on archived link webcast call, at to our a for presentation After find the website XX on this be relations will webcast investor the You investor.walgreensbootsalliance.com. the and months. website

to Stefano. over hand now will you I

Stefano Pessina

and have for this pleasing be to was been our the Thank in to quarter After line us return to our again that That pressures able businesses a ahead to market you, seen to us, Gerald, get of second a the what everyone. we that continue for the quarter deliver consistent to said, hello, has expectations. with broadly strong report to we very allow still is and do have trends sometimes growth. and it and disappointing our transformation company impact lot will

were reflected future We were clear be financial been the market that address in performance fully the impact action accelerate take years. and therefore working our will the But not we our until changes and time to financial undertaking hard plans have program. to we

focus have work the skills the you assets I Last within told our the we company, need the markets that transform. would we and we we doing our to that accelerating repeatedly said to are face we quarter, our on have, challenges as transform address evolve we that and company.

that. We are doing

The Transformational foundations Management structural Most importantly, the the company, change agile a the is Cost underlying more early this of and help of began Program drive organization. we we need to one that us in more more year will making changes efficient, a make. this program that responsive

restructure an to major a of It a us expected our for better needs we to help market. our performance, financial the an and portion significant rapidly ever course, of required element it businesses provide give in the investments. And, technology changing will to more meet bridge is of upgrade as of development funding our

of do through I James the them quarter, you as ask will talk Alex points, address these will to and James? they some which now.

James Kehoe

everyone. Thank you, morning, Stefano, and good

results decline Overall, our and quarter. fourth Third benefits from a included prior strategic were expectations of ahead timing X.X% constant currency are tracking some quarter adjusted our was EPS The goals. of versus well slightly $X.XX, we year. against the

we are our And Management performance track much still which Based what very quarter, adjusted U.S. comp by EPS Transformational meet accelerating. on our early while guidance. is full Program encouraged deliver our Cost our we needed to reaffirming sales, quite full days, are on were stay on We expectations. and to to exactly track in year year it the is

We continue a on to currency basis. flat expect to roughly constant be year the

the mainly increased from USA numbers. the in in the look to third quarter, our at Retail were division. sales up X.X%, due detail performance X.X%. and now currency growth Pharmaceutical strong On more Pharmacy Let's In Wholesale basis, a sales constant

Adjusted contribution EPS declined lower currency and $X.XX, the due pharmacy a results store on to of XX.X%, mainly basis. X.X in in Boots basis. constant and percentage X% share to This operating was declined income includes on sales lower or in XX.X% margins program. of a decline a currency U.S. constant repurchase X.X% decrease point UK. a from a our This front Adjusted

the to including our declined implementation to to million the of adjustments of AmerisourceBergen's account In GAAP than XX% share these $X.XX total, $XX expenses decline. XX.X% and Cost operating $XXX related year-on-year PharMEDium. Transformational Program for EPS impairment share. of GAAP declined our XX.X%, Management of more income relating million per of

Pharmacy X.X%. X.X%, on a more currency growth increased contribution which X.X%, Adjusted This offset USA Pharmaceutical from Wholesale. growth sales EPS, was X% a sales X.X% on Year-to-date declined or basis, up basis. up share and percentage to a constant X.X% a constant X.X repurchases in from basis. On tax, operating including Retail X.X% reflecting point currency X.X% than a adjusted constant headwind X.X% currency and income contributing currency was by of an were in in year-to-date increase

brand points, profit Organic the with the at gross mainly Sales declined increased X.X% and Retail margin look quarter, Adjusted basis XXX pharmacy our increased and due in declined pharmacy. to sales performance pharmacy to X.X% due starting script gross X.X%. let's Pharmacy inflation mostly divisions, of Now USA. growth.

the front million to and not adjusted to offset quarter, enough XXX in store year procurement savings, results sales. $XX continued also compared X.X Adjusted reimbursement SG&A basis XX.X% SG&A spend improvement XX.X% adjusted in to script pharmacy and the of percentage X.X%. SG&A of income was point Adjusted quarter, equivalent pressure These approximately lower decreased were declined And the of labor operating savings of the operating store points investments of quarter. growth and included ago income. an sales,

comp reflecting at growth increased X% growth volume improvement the strong Now prescriptions pharmacy a pharmacy growth prescription the X.X% in inflation, and a more higher Comp let's detail look grew X.X% grew X.X%. first which in central pharmacy. on of specialty, brand strong sales X.X%, in half and sales Total quarter, increased year-on-year.

due These to to XX.X% Pharmacy quarter, optimization margin. building XXX the by was to continued due our scale, profit points to than store driving declined gross than versus procurement is, savings. reimbursement with pressure services partially around points was were basis and inflation, down specialty XX gross year, health offset lower program. long-term entirely and prior associated impact in reimbursement year, basis a brand was script due efficiency sizable XX mix faster share more growing basis by a last adverse versus year, lower pressure, Market growth Gross impacts margin prior offset business. key offsetting creating business. The care point as the

accounted and Tobacco and the Turning XXX XX but as decreased an flu optimization points by from declined next decline, to Total retail our on X.X%. negatively sales basis improvement cough benefit X.X%, of Comp a we of retail season. program. our X.X% store decline comp basis the the cold were did of comp U.S. impacted half sales for tailwind Retail business. a result point sales first

as an impacted our second promotional to due negatively margin slightly lower we trend Retail declined down quarter, program. rebalanced Gross were mix. optimization profit basis improving store mentioned mostly sales, versus by was as by the gross our points, earlier, I which XX

improvement see a in We fourth expect margin trends to quarter. gross the continued in

Turning Pharmacy to next Retail International.

pharmacy comp U.K. talk currency a comp U.K. weak Boots declined As challenging Total X.X%, I'll reflecting to to growth declined Boots a share in due sales sales to usual, retail X% market. mainly Whereas X.X%, as in prescription a sales continued gain quarter. constant numbers. we X.X%, decline the market. in in increased

margins on to XXXX. and XX Adjusted down introduce XX in place weak Our the in retail U.K. income XX.X% remain sales is due beauty operating track in new we reinvention lower now and to was in stores, brands pharmacy

temporary was NHS by business U.K. and These impacts generic underfunding Our higher pharmacy pricing. partially offset were industry-wide volume growth. by only prescription impacted

and our actions a later. taking are will cover U.K. to cost these base, little I We address

The Turning quarter delivered which the markets. by constant now with Pharmaceutical division, led up strong another sales currency. division emerging discuss I'll X.X%, also Wholesale to in

Our Adjusted European to quarter, contributed customer gains results U.K. X.X%, strong solid reflecting part aided which contract change performance growth. and business. increased X.X% a our from income in by Turkey was revenue operating in mentioned last

months cash Turning next flow the Operating billion. flow. year. nine to $X cash $X.X was Operating of by of Free cash flow was first headwinds billion. for impacted billion was around flow the $X.X cash

cash reform. million million, lapping benefit of U.S. of $XXX are as $XXX a tax higher, prior working tax result of a We payments are one-time year capital mainly

approximately increased to management higher million, the optimization million. costs settlements legal includes sales. $XXX program. and ongoing cash year of This and of the And million cost we due primarily transformational relating working Rite Underlying Aid capital store have integration, to $XXX $XXX

first mostly for the was higher Aid nine due the $XXX months, the of the prior $X.X Cash Rite conversions. capital impact investment billion million was year. store for This than

Turning $X.X Management our We remain cost XXXX. on in target Transformational deliver now billion to Program. by to savings Cost fiscal annual

headquarters complete, benchmarking now Boots wide-ranging reorganization cost our to structure are targets we're plans fuel complete. the execution reduce fill. and U.K. U.S. is program reduction smart and our spending headcount and The of at a to are Our setup, pharmacy accelerating XX% supervision

compelling has moving our building is optimizing digitalization, also consumer-value on and working Work our at we many vendors. migration started on On now propositions. Microsoft pace, out have cloud IT began

we have have review over next Given will completed around difficult and conditions portfolio, locations a XX XXX the course U.K., of impact the optimization started in the store store of program the that market months. our the

walking another Boots making, XXX within these are and them of of loss of stores store. distance approximately Many are two-thirds

on to store around of expect While colleagues, expect impact base, the around stores. revenue significant X% will the a X%. not as redeploy plan nearby to do stores We we impact be we we close to our plan represent

months, real supply More are we through in these the opportunities. pace estate especially the in key our and change, the also follow in U.S. reviewing work of to We our accelerating as coming U.S. footprint chain.

guidance. to Turning

some As earlier, of by third I benefits. slightly timing expectations mentioned ahead our aided quarter the was

constant and EPS are on we reaffirming expect year result, be full basis. we a our to As flat roughly adjusted guidance, a currency

we last a As plus you reminder, to X%. of quarter range expect or minus a told

normal in of size, a we this the range appropriate. Given of level business volatility this is still feel

of just assumptions. Let a you give couple me

you prior in you building of now be is than update this worse $X.XX and our guidance. currency your should impacts, models, $X.XX As negative

repurchases tax percentage we geographic full benefits compared X.X And, changes XX.X%, discrete billion, XX%. earlier rate and a year lower full rate to nonrecurring project to our guidance reflects year contributing adjusted share of to to now continue points growth. project of to adjusted XX% our We mix. EPS around of $X.X The effective

highlighted million. original labor of investments XXXX provided we $XXX store incremental and we When our guidance, fiscal around

spend additional total quarter. coming in digital million of with the now our approximately significant of of we we investments, $XXX pace accelerate As expect the fourth a the incremental portion spend

Let on, the two me from saw From change headwind finish Rite Aid. the the from revenue by optimization revenue revenue quarters in the the year. Rite store We reported acquisition this of positive quarter Rite trends Aid ongoing to coming first highlighting is to program. due Aid actually a contributions in

to the update and you underway Alex, in U.S. he we initiatives hand over now will have some business on I'll of you the

Alex Gourlay

Thank hello, everyone. you, James, and

quarter, pharmacy, Management to During Transformational transforming program. neighborhood and in destination our a digitalization, Cost accelerating more we creating make our health a offering, out continue and modern priorities; around the retail progress our restructuring strategic rolling four

We'll also offering. omni-channel our develop continuing to

channels now Rewards times, XX.X% digital of XX.X members in Walgreens year, also XX.X% up initiated and been Balance increased active to since app has refill last scripts were Walgreens our Around last million. XX% since XX.X quarter, the million retail year. through up Our downloaded

leading of the were Walgreens, significant partners NoX by and of launch by the growth. NoX In Correcting over up our helped Retail, retail advertising other Booster performed the saw well quarter. in brands In NoX beauty Line Laboratories sales our and exceptionally XX% Serum

in In on and customer Walgreens own proposition. we're value working our drive sales addition refreshing improve the portfolio to brand beauty, to

in the During and or of been deliver XX% work years own through margin. has value two product quality the brand improvements is and sales ongoing. rebranded offer past re-launched to better over This enhancing portfolio Walgreens customer the

store our to continue of program see XXX Rite and Aid we we've the completed Against XXX customer stores closures optimization retention. very much is on good track. planned

to complete As end have stores, many successfully Aid XXX XXXX. by the Rite the converted ready to to fiscal been integration year Walgreens we of expect Walgreens the own and

opening as destinations, our we our the further five quarter neighborhood Humana steps partners be VillageMD. working branded eastern develop by the clinics We've and the including during With primary with care area and taken health in LabCorp we Village announced VillageMD the of Medical end Walgreens. state-of-the-art at will year to

on finally outlets so positive. customer has LabCorp response year. also XXX open well Walgreens And We on stores and the this the teams been to together Kroger remain working at track far initial are

Stefano. to back you hand now I'll

Stefano Pessina

Thank you, Alex.

we already get as expected. have lot again. delivered heard have But business what So we to a we growing of you ahead the work have

we been have us with leading to working keep accelerate the or initiate or hard line in need market. We the changes to

and We of heavily updating our are efficiencies systems come. will years development for capabilities, in many scope creating which investing the give infrastructure, us to and

and new We are developing channels. with new engage new our products ways services customers, to introducing through

with that to market skills, create income complement scale We new us who our streams. expertise the us and partners bring are to to development give us working allow our resources, new significant access own and thinking accelerate

remain business core us. traditional fact At are transforming markets. the on we challenges and have been life time, pressures and areas of rest our of Economic continuing for reimbursement same focus our of our a but the long

values of levels developed different have pressure. at we the years this the to impact mitigate Over

years, generic procurement, and sector, improvement ongoing actual terms. has possible in changes significant recent continued have generics led major of development the this a of by process, to global in improvement element all been buying which patent in the made in In mitigation manufacturing expires procurement

by to enabled on buying for significant made us us the compensate payers. These have benefits demand

toward to it As level lever future although to and many we made pressure mitigate reduced, current for have the important come. which continue procurement an be can clear, has reimbursement to years will we generic

the we accelerating this Recognizing levers are pressures. to other mitigate

to no a saving do range for consistent that our that we savings into time We services build and have benefits the There more future. also to over have and payer level and is we of service well efficiency to expect partners. drive cost doubt

up conveniently lower setting. to better more a of is various in This had a these expert would than health own a set fields, offset We able them. effectively are cost with of pharmacy future allowing to premium range offer why and believe in exploring range us care wide that service is significant wider we services a a the aligned be to we partnerships for our provided to community we of services or innovative a paid if and at do on efficiently

still of being or many the tested still are services development. course, in Of are

future. together have we number partnership in are Let while these years. business forward be the will meaningful a community over the our condition combination and pharmacy range truth In on single however, mixture define of me will and over health and individual's customer all our services, a convenience our the Their impact many be of has services proposition. differentiated frame clear, impact of The on management future of to it products basis that of economics of no one will to the of piloting a business, will together models. potential changes least will a inevitably complex wellbeing and bring or products working based

the partners into truly has wasting financial understanding or operational of we for The might we consequence without customers. our these right of scale. we amount a us resources for what into model, benefit getting of rush time, We we doing these in our if be But for services extraordinary them have potential and sure enter an before the and more. are risk businesses of huge

our Today pressures are many at the focused we I immediate the looking And we people complacent to risk from sector, face. far us indeed understand about are company our face. they this; on perceive at

our and increasing local reach an positioning place of health gives financial pharmacy and strength in to convenient productive the practical see lives and scale, can The of ever inherent business. leading us their their communities. we community people for conditions demand manage and in strength. fulfilling effective, unique the and sector while efficient However, There for is support our

deliver on to a our which robust platform, value it serve. company foundation and many shareholders and a meet the markets to transform needs ever years our us evolve us the and to customers to come. changing gives our growth from, we fantastic of It And gives innovation, for for which

you. Thank

questions. your will take we Now

Operator

question from comes first [Operator go Please ahead. the Steven Instructions] of you. line Thank Your Barclays. from Valiquette

Steven Valiquette

Thanks Good question. the morning, taking and Thanks. Stefano James. Great. for

entire business a specific within across large an as could mass remains we're the larger sense for Retail could merchandisers types among a So, that the CDS there stores U.S. getting U.S. additional or operators a Walgreens deal where store-within-a-store the U.S. of Pharmacy opportunity merchandiser. over the all for industry, a and take mass be the really difficult in the pharmacies

So just you're right that store rationalization appetite I'm curious now like for U.S. the also your given through in going this Thanks. and now to about the current your the simultaneous an hear U.S.? initiatives opportunity in program other right

Alex Gourlay

Hi, Steve here. its Alex

get make there business clearly strategies to to scale. to grow our volume is our of bigger One and

really So said is many, we times. as important partnership many -- we've and to us also

changes for So measured time. with the really first and for pharmacies a these the is the the as number can see are long changes U.S. decline of in market -- in you time

We this bring pharma expertise Stefano remarks his said chain. investing we scale, and in the and are in obviously area. supply open in pharmacy Jim and to partnership said as we're We bring

open. look available partners And, for providing the of that our of a increase us we're course, and every quality our business. sense we’ll So opportunity for makes mix

Steven Valiquette

Okay.

Just quick one other one.

As opportunities about calendar narrow network we think XXXX. for the

the quieter terms shifts of market you potential opportunities see if the going within curious XXXX you large Or retail year think yourself meaningful narrow do among level marketplace? potential activity? of for for market and like pharmacies shifts to XXXX given RFP share could calendar network be Just a just the the it's for in

Alex Gourlay

And normal. a the We that year. plans expect. Again, it's normal we've laid of growth Steve, in probably more we it's Alex more out Hi, our heightened think think again. we it's terms

but more year challenges, always think and XXXX. always we within probably of course, than is a Now normal that is there opportunities there it's

Steven Valiquette

you. Got Okay.

Alex Gourlay

Okay, thanks.

Operator

of the line ahead. Your next Sachs. Jones Goldman Robert from Please from go question comes

Robert Jones

timing fourth size just mentioned the would from results included you those I James, anything the those benefits the and some share questions. the you could quarter. be of for helpful? the that benefits benefits if curious, Thanks Great. of on was source

James Kehoe

Okay. best the would estimate. up the we're in digital store And Roughly impacts quarter. that's or Yes. had our the now comments, also the two is $XX of and And $X.XX is the ramping labor around in amount and -- I expense. say other we highlighted One in development was we timing. one whereas million spending

There full $XXX the increased is of $X.XX we've fourth $XXX million quarter. a to the year -- on spending the million. about by So from XXX that in to

So $X.XX-ish do items, certain And million. you $X.XX in two in true-up you when outcomes was the that of payer about Around the business, was $X.XX, normal you compliance get roughly the whether $XX of QX. and timing tiers. you think essentially when the or to of we it. of part contracts, around timing one the his And had that's volumes hit expected or course but but

from And $X.XX some We timing. into a QX from then savings real expense QX. coming is estate accelerated

of was maybe it surprises. So quarters actually few the volatility of What's one in I'll interesting the very terms take opportunity. quieter -- here

out you QX, takes into because of income some looking this As QX. out start

targets out cycling working last And it, through these. quite your on estimates. year. basis, working EPS two through you start start Our large mind, -- QX when had we're items you actually is Bear we onetime an in

million. there curtailment onetime That cost retiree was made is first The recall of $XXX adjustment medical. approximately that year, last an $XX which large for was the we a was quarter legal then and one prior you'll in true-up, relating million. And was benefit to a

$X.XX. another that's So

it, think EPS a XX in about have So if point headwind percentage we you QX. on

on to you in the is looking actually And gross onetime year. and margin good headwind improving forward the margin. it's all trends the -- -- due items pretty we're if you when all to the we prior overheads QX, dissect on So

was large When in through it last this So think -- the we low. year. volatility shift items I you two think get -- you actually as QX, more that into quite QX have

that's So a is quite you bit. core it's little bit. helped actually, when improving performance I analyze -- result, the a quite hope the actually

Robert Jones

little the And you elaborate I'm U.S. remarks, real your footprint James. should a at you. just Is be bigger prepared if reviewing ongoing helpful, in guess of point? highlighted kind going follow-up. just this we of other I your thinking a Thank estate just thoughts that again just very could That's rationalization. around, wondering course how is you're the you bit store guys business to one be this In the focus? about Or this

Alex Gourlay

more of regular. Hi, is Alex In way this ongoing business. course Bob, it's it's here. Yes, a

We stores and shift drug as customers Therefore, thinking previous America. new We're have in before over questions. change opportunities about X,XXX also things formats move. spoke we answered

normal this So is just business.

James Kehoe

though, add are to calculations just And the complex.

to through we'll the the are it, XXX you store-by-store as heavy the the look the closing about it's -- have that. it of which the we're moving but And as U.K. all Where Not through XX% workload. is we recently quite at it's the optimization. the just ahead Rite X,XXX are go a in stores, of like and aggressively quite -- there assessment. of teams lose money. lease the of is We working stores in U.K. that confirmed very think a some portfolio, And fly on interesting stores And by. others them, move Aid

closed we close stores, to the U.K. other each in So two

And sometimes taking you're over were and out a to they scripts, structure. distance they're cost but walking fixed transferring five-minute

which around that We impact U.S. would It's you presence we X%. we're the So generally to reducing assess do. U.K. are complex. the in the X%. don't highlighted area, quite to both leaving and count a I have we want trading you in on store the the preserve in revenue in are our like calculations -- U.K., And is the The comments, highlight by to

the contrary. want us profitable U.K. stronger, a ability because we're rounding. would to operator in strategic But U.K. maintain to it strength our our has on It the call that no position actually even of our makes I on in So argue impact the market. don't I

Robert Jones

all for Thanks that. Great.

Operator

Wolfe of the from go question next Please ahead. Your Justin line Research. from Lake comes

Eugene Kim

about XXX question basis compare was to And like This Justin. in Quick margin. a points on read dialed clean it do Hi. near should QX going year-over-year, quarter we correctly. should we It contract in -- that we is term year-over-year, about for this the we U.S. decline seems that Eugene this a specialty decline it rate FEP think pharmacy think if should the -- gross Is can lapped. consider? how of forward? How because we

James Kehoe

that. ask weigh to I'll take I'll afterwards. on And Alex a shot in

the through that would think we core We X.X%. always than expect grow growing I -- FEP to at business business. at the cycle specialty the contracts, faster the

So we'll always be somewhat margins. dilutive to

other One the in other is there thing quarter. dynamics

in So we mitigations is, and accuracy, in if core on the reimbursement as it the the of is project mix branded that single take procurement can't items, lower problem solid generic impact actually we net with But is any other quarter, individual more sold on the a a margin mix than And you pretty creates and significant quarter. impact. that's branded of the as as any out mix a other quarter. well. was these And and lot

we're expect retail willing in go. far margins do gross to as and improvement in – We That's both some QX. gross sorry, and pharmacy as margin retail

else something on is would extrapolate We take trend you expect QX. and long XXX into in mix in Alex? some So points the it, everything not and do as this pharmacy. a basis it should discussion. be plays out very But improvements

Alex Gourlay

Yes.

than And compensate feel stated just we trends always in in said, the to compensating going think do as are seeing terms the pressures there it. for as QX QX we forward, there we'll we and stay about more margin compare. James reimbursement that's and of we've has how we I recognize how ability

of are in forward. think going which particular, just interesting couple I areas, a

in paid for getting contracts, I are we all, say more D. of Medicare First particularly would value-based

think work to So targets, continue we're some performance also, some have And I networks. encouraging. differently the in starting we hit opportunity which to to of is the

ago, prime a would transparent. to believe that will in where more to we I to much forward again, did contract, And really more where different that is market example, -- -- approach point available process become going will have say marketplace, we're has the past. For I say some the been the we time I we again,

said. we've as under go we and if the well the new is often about innovative, margin as So hard it's to lot. doesn't reimbursement spoken that levers -- But away, as we the on a continue we levers work we've old work pressure be creatively

James Kehoe

Yes. a tough numbers margins, giving make the that quarter are a just guidance. QX obviously which was as factored perspective well. tough had in of the these the I into our you full we history. one QX on We're QX any highest mean, on year reimbursement, we comments was all

We that start good see news improving in previous caution impacting putting overheads. but side, out call, is we two the It's the that as pressure said they trend onetime an QX will the on to QX. future. we And -- will in call margin just the are don't in large items is to on gross those on repeat the

Eugene Kim

Thank it. you. Got

James Kehoe

Thank you.

Operator

Your Ricky next question Stanley. ahead. comes go from from the Morgan of line Goldwasser Please

Ricky Goldwasser

you're seeing EPS. you the you XXXX quarter still with Are Last up in -- morning. us fiscal flat think good marketplace this? are Hi, to everything directed Yeah. year EBIT still moderating being I expecting you year-over-year and

James Kehoe

be comment guidance on guidance. XXXX. call, the will comprehensive around a to going XXXX conference to models of give or the year practice will Ricky of What assumptions to back just in want next long-term We we discussing doing is we're current into don't going XXXX. on all get we

going people to back refer -- the not discussion to So, that in QX. a we we're the just back we previous on there placed material out

Ricky Goldwasser

you Okay. follow-up. that in I U.S. said opportunity you when terms the just of you kind supply additional of the prepared at as talked portfolio looking also remark think you're the And us chain And is a review In about what you the are a for then generic seeing give little what headwind? on there? color a more Can trends then like bit deflation improvements.

Alex Gourlay

Yes.

Ricky So, into the the -- I the so question is USA retail portfolio chain already we're split stores move our HANA the I'll say we S/X software from and second would system answered supply chain. replacement maybe our into question in of the DCs. onto think going supply core I I'll SAP halfway into

it's especially So, speed before. very with we of capabilities now new have didn't clear data and tools opportunities have the that we data,

means in that more through we're terms encouraged only the So, we're through but as in by progress updates halfway what give of of it. goes that projections. But we'll there terms

recently working just We with think even global to supply on the again I as the focused we're And in quite hard capabilities we you have chain. hired really building Nielsen. secondly the how to understand call experienced be them going we're new don't forward. saw business more a very team

going terms remarks, that office see drive we global in a WBAD generics, America. think again values with in our platform through forward into into to as also opportunity pre-prepared WBAD continue Stefano office. very the very, but said of his performance to be pleased the of I to we And a continue

So, that's supply piece. we was part I see what the the how question? chain -- third the of And think

Gerald Gradwell

deflation. generic The

Alex Gourlay

The don't generic any honest. low to difference mean We see we marketplace the been be will I I single-digit say recorded deflation. see what's deflation, in a yes. this to

off in the describe As we coming they spoken have see others. about to way generics going patents a that

a in feel And, we impact that's a pay to And to material all of quarter. of the lot because on course, cost has this guidance captured it we attention goods. of that last our that register we ability comfortable our gave reduce

James Kehoe

refers single And to add to just Ricky digit Yes. molecules. in low includes Alex new the

right. are new out our X%, -- saw molecules market least We deflation strip quarter we numbers numbers. at the had around these had If not of most you recent

So, it's was clip support is still And this the -- up generic savings at continued and X.X%. healthy prior quarter will a procurement. that in

up still single-digit. a high it's healthy there So, in

shrink molecules. the in-store very U.S. I'm the so the we're using Then chain And excited setup about a and in teams that's left piece have from market office now we stock Whether office. you because at builds looking to or team in supply here Microsoft. were new warehouses. stock --

data what Microsoft So, and on benefit opportunities. of eliminate it understand There's bigger build are are on agreement. true how these to million of this helping $XXX scientists us data is the and $XXX to links shrink going the who causes shows million, and this

getting that's capital side of without And the into working it.

visibility we be don't we SAP Hana the that today. want don't that have I that stores X,XXX stock in So, across a place for lost. have to Once fill

to significant we required level inventory be held levels. Now, at reductions in expect of store the

be this and [Technical a huge. lot will -- So, is Difficulty]

see reductions to levels. material that in exiting would expect inventory So, starting we're you XXXX,

Ricky Goldwasser

Thank you.

Gerald Gradwell

you. Thank

Operator

question go Research. Percher the ahead. next comes from Your Nephron Please of from line Eric

Eric Percher

I how on generic fluctuations, Could in also pressures that? you. for in I'd made or comment temporary the dig seen XX we've that some it And incremental already a weakness you expand about understand is the to a Thank you months? underfunding. performance. the about of the we've on XX to international like weakness And pricing last spoken

Alex Gourlay

fundamentally Alex mean into way The want -- works. but all in pay payment market that which I if it U.K. Yes. point. let with underfunding how details go here. don't what's there certain into it's about the last government how is of in they you first website a Eric, for U.K. go the And me to more pharmacies there called the it's start the a question the PSNC I detail Hi is the

we So, period. been underfunding in are pretty the last convinced there's

are we're Now, debating the of course, with working PSNC, new within and the put place. as the in positive contractors in way pharmacy contracts that our now government a

course of until further And to. refer that we what complete. comments we is that's can't make So, negotiation any

But overall I of of performance terms think in the the business.

making the times. model is difficult are U.K. terms in don't in progress reinvigorating I marketplace the difficult very you tell in there. We of Boots have how good to the

well. new store beauty feed future of not a will great around store, the concept a that For morning, a which concept Boots, the wellness, give opened us of skewed as store only example, corner. Covent for fantastic could And new some course ideas U.S. this was we health, but Garden in also this is market and

that a digitalization. of of use lot it. still in in We've of card way the a top card cards some lot popular of terms which by most is customers done Advantage the beauty treat and U.K. On the and we've digitalized

under well today. holders million XX it's think I

the we've could also the that of the Walgreens in digital pass time managing the prescriptions U.K. for We've first of in pharmacy some launched created part we that the as great ideas of merger. copies terms across

in to the the the the of from course Boots in already maybe of future James of cost programs business. And into terms investing referred remarks his older moving in model money

we're So, some that's more investing a we'll give updates to sure lead that we're using that where develops. And current we're as make performance. seeing And of you the our future. market really interesting indicators story course situation of

Eric Percher

that from the adjusted But hope that have business comment changes basing your PSNC now date those for made you're moving forward? that today? is business your and might made where the you be we suggesting been to -- Is there sit improvement some

Alex Gourlay

Yes. of that's an reflection accurate I Yes are. absolutely. would say we where

James Kehoe

fair a that's Yes, point.

temporary. would emphasize word the think I

we So expect and levels normal an year. improvement back to in QX of funding next

Alex Gourlay

Yes. Yes.

Eric Percher

the I -- Will mentioned way us other store revenue and That's employees X%, that see to helpful. it just those that you only is stores the the move X% the stores. run but base? cost? to employee carry you help of of you Can on employment you store where with continue guess the you you could maybe reduction may potential could all impact And

Alex Gourlay

really small pharmacist. James Yes. Boots honest be straightforward. within the it's of are another said pharmacies. to a the two-thirds distance of there are And walking relatively main I These is pharmacy. the cost mean cost

we able any take of pharmacist to that we have we retaining quality to and like need care We would have see as been have communities. company turnover cost customers simply while that the and manage people

we the you script important in remember retain here if often trust. care transfer lesson local customers the assistants and the pharmacy a know learned face will very the in then the pharmacist who the of people that And USA and to health they similar very

is economically well. as important this So, us to

James Kehoe

of of X% stores its And footage. I it's X% the believe the square

is And are impact much So, percentage than stores. stores. the the because is lower revenue much impact the efficient there lower less that employee then of

it's So, logical. quite actually

of turnover base majority of fair we amount employee of amount and fair there's -- of seen have general people. a you I the in we've manage think there's XX,XXX turnover people in a But the the then past place an U.K. And in the most in

Eric Percher

Thank you.

Operator

Ross from Evercore. go next Your comes line question Muken ahead. the from Please of

Elizabeth Anderson

wondering Anderson that about This if procurement of for Stefano see. on sort generic particular comments Hi. you Elizabeth the of I Ross. made was future in areas is in you savings could some of expand that

Alex Gourlay

Hi, it's Alex Yes. here.

it that way said think with effective we efficient a to continue supply say That's that have said we very already so and of to and customers which to we slightly important give we different. really we and dimension of a in work prefer still We I WBAD is think, clearly, what I'll I Stefano and innovative out model in and get contracts them have work. together the back certainty supply, to certainty that's plan of marketplace. allows to the in different us a how manufacturers

the savings, opportunities Having it's just will said make forward. we're make going we of going It's all not changing. said that, as that to level savings, changing we is not Stefano -- know

with mix at we've The setup we partnership Scripts partners WBAD have a volume from continue right setup is example of got ways from Pharmacy. to scale going making forward. look the other we partnerships innovative combining and one already. into Express that with some the we we're for So, sure going the volume where the PBM And of Retail

forward. I we have but thinking the again, And the think going with their that of And as think have us advantage things into with our they differently we approach secondly, organize, them, to work are well. how we we the can't been talk manufacturers behalf, give way to them you buying saying. future probably in continue the partnership and on that some will

not forward. us going in see clearly, and volumes, don't as know well. and and future the other think We But will reality one could plan banking will the and open how in particularly direction course, that global a global we up. And in that again. we change perspective in we're having Of give change opportunities markets the on future, things may global

Elizabeth Anderson

All right, That’s thanks. very helpful.

Operator

from Santangelo question next Guggenheim. ahead. Glen Please comes of go the from line Your

Glen Santangelo

your you question. to of taking just issue one had competitor scale and main key thanks one to marketplace my more and reimbursement follow-up the you'll I the in else you correctly, need you heard more order time. is combat seem the Yes, keep guys pressure, you on in anyone of having the to one for that this scale, I reimbursement If than is issues. have closest be but pointing yourself

And number could obviously And broadly more pharmacy I to feeling I if counters comes you there. some the just must the of comment And of is come they so, curious, out question guess I reimbursement was was XX,XXX are pressure on than wondering mean, can I capacity that more starting the you. XX,XXX kind down? out you see to be the of until total pressure subside market? my

Alex Gourlay

Alex we've way It's are pharmacies close. marketplace And The these I the to are numbers internally, measure think the in already. here. market that as well. we some I open see starting we Again, said think pretty

So, reopen. happen that is to bound not and

that look obviously marketplace. I can the there. to competitive secondly, feeling you And are so, I only all the to at we comments check think that marketplaces out in mean from the you pressure other is have see a fact

but The all said forward. care, as all doing, is excited other location with really pharmacy, other we the other in why not and we the opportunity connected community and work the community to the the Microsoft, so new but health side about care that, strongly, is health continue solutions of all are available the for the just coin forward a physical great I connected accessible, to pharmacist pharmacies, with That's know going for believe data, with relevant Stefano not connected with we're through just care bringing professionals, partners.

you who are I talking and we in And on For terms go to we've and people well are talking Verily, example LabCorp. the managed of can them. the us assure as to could list

future will about have which technologies pharmacy. So, that have the and we We're of local had in the same that really always new are driven that change, patients model today a by and conversation we confident their customers their really with local confident they the pharmacist community. see need

Glen Santangelo

I'm mix worked if What there. just could has been And today. And like might stands where thought? have May the there reiterate it wondering, what a the half, you be of strategy to JV seems than to hasn't of on the that well better Alex, a the And last follow on and year of talking and you of can you if Hey comment I respect thought? mean as with additional has results were strategies maybe what some crack maybe just foot up the Thanks. about the we traffic. what worked partnerships. lot I about as sort maybe talked generating you front. sort just trying stop I'll exactly over one code

Alex Gourlay

are I'll the an we where seeing expected. of you. we our comfortable, which footfall Again, very is that example Thank partnership. Glen. FedEx Thanks we give are

are the from and in customers develop new seeing i.e., that new We opportunities Walgreens propositions the also we FedEx the are customer work drugstore. halo seeing strategically to our we the team to expected with corner footfall to closely

So that that comfortable are example very be we would one with.

going And of and well been positive. reaction which course, mentioned going partnerships Kroger forward, other We be interesting. already is really are partnership the there'll customer the has

are to that will also are really believe right the So for example really customer tell, that Kroger where we But find companies can and works and if time. again, proposition over our model both and time improve value that's for they we another food help experts can in customers.

Glen Santangelo

Okay. Thanks.

Operator

line comes Your from next the Please ahead. of question go Michael Cherny of from America. Bank

Michael Cherny

color for thanks and all morning the so Good far.

I gross it least removal number thinking you do margins at just you had Is in of why about guess and guess year-to-date. reimbursement know Is With bit those it annualization mix? pieces of a within on know just the annualization the gross little -- a you've you've Just talked and confidence? improvement? something or the some think far I of pressure the XQ, should true-ups timing? talked the why there sequential pressures I margin about what the I last And so about year less the about the to relative this to of pressure, Is there better? regards seen to you Retail I relative moving want or that get something gives to Pharmacy quarter? that in guess, quarter

James Kehoe

Yes.

you exceeded have a XX% the year you back said I was reimbursement full go pressure. it's we think think of little I pressure reimbursement a because journey. QX said of actually, on was bit everything to which

going more equalize those -- we're both back set an unprecedented to in in saw see would've go some level. variables the procurement of But we we saw level QX. it So, And to on QX. QX. the slowness normalized in We savings

procurement it are, can't one tuning some The reimbursement biggest at the It's being two QX So mitigation. and savings to -- net and you back of is look really between there's QX reimbursement. there. gets as it

had script on to comp for want highlight, to When mind, you first volume, some we We challenging X%. a we had I the volume below set fairly basis QX. a Bear get great half goals in internally. in quarter

in So we of number to was it one. fours and the to That's need needed do high those numbers. kind we something come

way very the came retail also with pleased We're in.

continue If tracking X.X. quite in numbers, to comp decline. strip a disappointing it same exactly you is back bit, We deliver hold store the We first but the will half trend of these change-on-change were we But down it's the pretty onto X.X% little a impressive. improvements. some won't of

a in what is, stabilization happen little together businesses think improvement some will see the both in you QX outlook bit I of will of margin on with side. the topline

confluence So it's then I'll you've got of again a trends. highlight two And these one-time big overheads. in items

and retail. our same-store victory stabilization has through hope and but and sales that's expectation of think you it. as margins it's helps improved QX obviously, too scripts the in early where I to you So, gross call current that continued

Gerald Gradwell

to that's questions Thank answer we And We'll the quarter. ask back I but have know to got ever get for. haven't who for as today. very all. time them I'm around indeed. probably of next IR but team questions, all didn't I'm all be to sorry you we those you your again are much afraid,

Operator

This concludes today's conference call.

You may disconnect. now

Walgreens Boots Alliance (WBA) 27 Jun 192019 Q3 Earnings call transcript