WBA - Earnings call transcript Q4 2019 | Walgreens Boots Alliance, Inc.

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the Walgreens Boots Alliance Fourth Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]

to Gradwell. conference like speaker to now Gerald today, would hand over the your I ahead. go Please

Gerald Gradwell

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

materially. opening over risks harbor presentation to future will, Stefano regulatory as Certain Before comments, I based and some latest through safe I in extent constitute undertake forward-looking subject results usual, to and otherwise. make legal whether cause statements uncertainties presentation, no actual relate our of in risk Please events, assumptions, they hand see are and XX-Q that to and expectations are or statements. on XX-K you changes by take we to this and statement you could statements update factors obligation Except vary discussion publicly results made any of of as that new information, a a the current as to our competitive declarations. this law, forward-looking to for future forward-looking Form to the and the result after required projections cautionary market,

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

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

over to now Stefano. will I hand you

Stefano Pessina

year it there has in from by we am said, with task two over financial and Gerald, That and us of April. Today to we an Thank flat very broadly again deliver team been in our the expectation. we easy that you, results hard expectation year-on-year, done has set these for everyone. with delivered line lot closed not is our in quarter In quarters. quarterly our results roughly been so, the which pleased past to a doing a second line to recover I report difficult hello, work

offering, retail making the they and a and asset to of providing services and our more provide multichannel We the digitalization our we progress using way responsive continued way support our have tailored a want experience; strength to against our network customers within they by and strategic to and store four run accelerating make technology help use terms in more priorities: us efficiently of we businesses the company of the modern we to importantly health the presence local products services; far restructuring as transforming our our more want; extraordinary interactive those transform announce way care we sure reach that services our of digital retail patients and and an effectively what and and our customers destination, and both and support. investments, offer the backed focused creating deliver in and and our in

demands the our delivering in evermore as company, to for resource of This to patients And, serve of Cost healthcare market and are effective alike. Management a will announce goal to on structure responsiveness and these and a deliver all our a our we need communities co-provider course, and and highly Transformational we efficiency to efficient the payers we Program. changes of support constantly that

make growth. that help truly program our need to saving is fund make for the we to is that This about business, to is to driving both us, transformation It reinvesting point. in the invest This for out strategic and about investments deliver important costs priorities. to

and as are strategy Our teams hard of their delivery. on have worked working hard development just this on the

identified more experience skills, efficiently goal and and have to resources then excellent more of deliver better, We our our alone. group effectively bring that we partners an could do

We model future deliver are our but transforming to businesses, growth. our just business not

have detail very financial in will financial James expectation been year current of for the part cover them as our ahead. review. clear We this in

forward be expect adjusted XXXX, earning constant-currency Looking basis. to flat per we a on to share roughly

work Excluding to earning growth. doing the clear and looking we forward, making. bonus investments we sustainable the by XXXX see are impact profitable a And we expect of growth, would line headwind, we adjusted the mid-single-digit share driven per the are

come at and hand I earnings to now end. James you questions and take to we'll back your over James? Alex update the and through today's will to take

James Kehoe

Today's you, and Thank fourth adjusted EPS with everyone. the the than constant-currency our was quarter, EPS basis. $X.XX, on lower year $X.XX X.X% in line currencies in broadly are Adjusted year in Stefano, results up constant Fiscal and good prior guidance. with a X.X% morning, our in expectations. was line

year. profit the We of sales comparable in second margin are half performance encouraged the improved gross by and adjusted U.S.

Retail by delivered Pharmacy to continued challenging division, strong the Wholesale whereas International, Pharmaceutical impacted U.K. a market, performance. be another

And much to on Management $X.X billion least Transformational savings XXXX. on is at Our Program cost with our savings, target visibility Cost annual we rising track. very are by raising fiscal

X.X% USA good Let's look a Pharmacy constant-currency U.K., Adjusted both operating was more Wholesale. partially mainly growth Wholesale. performance sales USA income Pharmaceutical due declined Pharmaceutical by basis, at offset or and constant-currency a year and reflecting results. from versus Retail X.X%, Retail the Boots Full prior detail X.X% Pharmacy year. on now to year full X.X% basis, increased in sales On

X.X tax of adjusted offset partially percentage Adjusted EPS were percentage shown the on X.X X.X a slide. $X.XX, constant-currency These points. the percentage was X.X% points with by repurchases EPS on are headwinds that up adding Share basis. points, contributed

XX% XX.X%, million we of mentioned of almost for million declined impairment total, Cost $XXX AmerisourceBergen's expenses, the two adjustments In of relating including as operating GAAP year-on-year share of Management implementation quarter, the to decline. income Transformational to Program our $XXX relating these last account pharMEDium. and of our

basis, our EPS or Retail in X% a constant-currency income program repurchase basis. from growth growth reflecting tax. a division quarter, our constant-currency Pharmacy $X.XX sales In of X.X%. decline came and and the was from operating X% X.X% share on USA Wholesale. Pharmaceutical in strong fourth Adjusted XX.X% performance were solid up of a declined and on constant-currency Adjusted another XX.X%

and over previously including share. were declined one-time XX points entirely investments the offset GAAP as these fourth XX.X% to and gain lapped a postretirement disclosed However, to headwinds, legal in of $X.XX by benefits XXXX, curtailment EPS we percentage we quarter increased of adjustment per accruals settlements. and a

Just a of Health on of Premise Cost the Program. over decline gain sale factors, Transformational due two to Management half the prior-year implementation of this our was and

Retail stores in X.X% pharmacy. quarter, Adjusted the offset decline fourth in partially by X%. X.X% organic move growth to of Pharmacy USA. declined advanced profit. higher, pharmacy quarter, in Rite Now, retail, Aid gross with a Full reflecting sales increased Sales gross reflecting profit sales acquired and let's year the X.X%, the in growth X.X%

the year. X.X a SG&A previously one-time Adjusted legal and headwinds increased income back in associated quarter The prior investments in from Adjusted disclosed the held points quarter accruals percentage was quarter, the with investments year. and of XX.X% spend prior X.X% in X.X% higher and settlements. year the entirely to adjustment one-time benefit by full and due operating higher declined

low the decline digit. these was Excluding single factors,

quarter more quarter volume inflation X.X% with prescriptions X% Growth in X.X% reflected is for grew up growth in X.X% the the quarter improving, quarter Comp X% and the Now in specialty, half the the sales let's X.X% for central scripts trend X% prescription comp first in the and which pharmacy the Total year. grew in pharmacy growth, and the in for year. look year. second increased with versus Comp for XX% over in the pharmacy. quarter sales brand and higher at detail X.X% year. in increased in the the along X.X% and half. The

Market half, you recall, now versus headwinds As due program. down share store in to we've year, first quarter, points the the some was XX had in the basis network will which mainly optimization prior XX% lapped. we

XX.X%. XX market full share increased basis year, points to the For

and increased Pharmacy-adjusted mitigate script with gross reimbursement in the savings helping profit quarter, pressure. to growth procurement

point was profit Fourth adjusted the year, slightly. down points XX last gross basis quarter than impact specialty. For margin pharmacy-adjusted lower including mix a XX was year, full basis gross from

X.X% our X.X% were percentage store up and X.X% optimization. Total with X.X%. declined retail declined to sales comp sales U.S. year Full X.X quarter, tobacco, points next sales the excluding impacted tobacco. Retail Comp business. by Turning retail declined sales to due in comp

Looking the half second half. at versus the first

year Full quarter, down report basis we to reported fourth expected adjusted we and mostly optimization compared Second gross due down improved spend impacted sales Retail-adjusted margin the quarter lower with earlier was half profit increased gross by X.X% in say last margin the half. first of promotional a store gross pleased in to to part were comp We basis see in our points, declined the program. in XX did that year. negatively X.X% which points. the quarter, sales, retail-adjusted were of that adjusted the gross as adjusted XX margin I'm decline

Retail pharmacy in X% lower script X.X% to years. to lower comp sales quarter a the Boots funding Pharmacy the NHS declined I'll due next talk shift timing reflecting level, currency International. as numbers. U.K. between to And constant Turning volume and usual, in year, and

X.X% challenging. U.K. Boots continued the declined the X.X% sales in U.K. comp year, the quarter and very to retail in be as market

XX.X% down margins performance in the year, the in pharmacy XX.X% U.K. U.K. good mainly pressure income to held retail a down share in we the operating However, weak declining share sales in market and and retail with was on Adjusted and in due quarter beauty.

Pharmaceutical Turning discuss division, currency. also now to the in which I'll Wholesale constant

emerging the contributed by U.K. contract strong another change by our division customer Pharmaceutical of growth. revenue X.X% Our was Wholesale with delivered performance and X.X% which In markets a sales up led part, quarter aided U.K.

higher X.X% reflecting and Full operating income adjusted prior AmerisourceBergen. performance operating increased strong versus X% Fourth earnings revenue increased quarter income increased and adjusted from year year. sales X.X%

$X.X Turning Full billion. cash was was free next billion $X.X cash flow to and year cash flow. flow operating

flow exceptional we fairly calls. previous Our cash and items was on have some these impacted large covered by free

Excluding these items free cash flow exceptional our billion. around was $X.X XXXX

over hand I'll now Alex. to

Alex Gourlay

Last up the Garden, develop you and initiatives accelerate about we've of initiatives London more Boots We've digitalization in Covent a transform introduced in in healthier in I'm locations in recently new and U.K. stores Sheffield. and retail services the James. flagship and hauls Thank U.S. Meadowhall, number update we XX opened going key our offering, beauty on talked you, the our to with starting U.K. to U.K. quarter

in by the access brands a year with encouraged new developing improve new further initiatives health customer also September. pharmacy beauty in to stores and broaden services plans We're care. in were journey We're introductions. care XX XX expanding key brand introduced our to to health the for digital and new

boots.com importantly, we've May all sales our include and expanded an Advantage platforms. Card Boots the pharmacy XX.X% performed digitalized the app XX.X% our fourth with to launched We've across well in We main in in year XXXX, customer prescriptions. online And our with integrated which repeat quarter. the now up

head As announced actions In been we U.K. base. we continue year savings to through completed address costs has by Boots' take to come XXXX. XX%. fiscal intention our to This now the will reduce James office program and mentioned, our in cost February,

a June, they're the on locations, the that store to track will end consolidate In by by around stores count fiscal XX the we announced optimization store end Boots remainder and impact of of reduce XXXX. the by the XXX program year

generated We care our chain. and simplification have cost of the home reductions also through supply operations

strategic our U.S. now initiatives to in Turning the

four significant on our strategic have the made progress priorities during year. We

online. about wellness, start on pleased We and delivering retail strategic focus we health, both a with Kroger. me offering, in-store very remain beauty partnership where with our and convenience Let

to in stores available and available their In Kroger Knoxville, be test Express expansion will the stores. in Tennessee. concept August, own to brands pilot customers our new we health The be XX store in of Kroger XX will announced beauty Walgreens and locations

customer service is returning extending an Walgreens before our We are goods for selected customers new to A with return Walgreens the season FedEx. for holiday unwanted nationwide introduced and being other giving offering stores system retailers. easier

on solutions We mile the presence continue our to look for in last for community. building the

recently up test previously FedEx Wing for with trial delivery. drawing delivery, announced to on-demand joining our our announced have with first-of-a-kind robot partnership We with

and health in We continue to progress beauty. make

website, the distribution U.S. and with of Walgreens last NoXbeauty.com, skin NoX of U.S. have month, alongside strong the months a launched progress seen NoX we in And national We the in ahead. NoX we're expanding TV stand-alone in skincare campaign. care

health a modern creating next Turning on destinations pharmacy. to around health strongly focused We're more neighborhood care.

develop have business. to year made our during steps primary We the care significant

in locations based the model pharmacists an Southwest physicians is Our four care partners we'll partnership clinical in and in care, and on primary with primary VillageMD U.S., across markets and Optum have working Company. Medical

in recently and stores by locations health centers early in to management have company that new also a XXX to signed to Walgreens XXXX. We we've a see weight a our plans wellness open Jenny Craig, I'm new develop delighted around with partnership loss and agreement

We clinic system locations. seven with we a signed decision are add further agreement to practitioner have with been XXX Walgreens We our loss-making running we partners, partners taken now new to of wholly-owned clinics health network we've clinics, but local a interviewing to model. have successful a our clinics. nurse And our and continue in XX exit recently work who will TriHealth

We Our XX. collaboration testing is total We're aiming LabCorp least across with the providing centers U.S. XX taking in diagnostic track. LabCorp in quarter, opened on patient at to the well centers to lab community. open XXX fourth the the

Shields in Solutions. an expanded also Health specialty, our reach We've specialty in investment provider making equity

outcomes community pharmacies. X.X aim as of clinical we through medication an Save a important up signed peers care. patients are million lower Refills the to such cost which programs, partner better already national anchored has Trip we patient local We by adherence of over as drive And continue a to network for

As partnership with Walgreens Medicare benefit and a you've RxAdvance, UnitedHealthcare, agreement announced including manager. the pharmacy insurer only seen co-branded Centene, Medicare Pharmacy. with with And new preferred a we've we being leading plan signed multi-year cloud-based a recently strategic Advantage Retail a a Medicaid

next Turning to digitalization.

Our partnership our to strategy migration and on program technology cloud is in January is with signed essential a Microsoft plan. driving

making platform have strategic And progress providers to on Care the partners omni-channel XX over now and offerings our business. and and in We has expanded include existing Find new XX we're healthcare services. available walgreens.com good

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

year. billion really up Finally, $XX report digitally-initiated pleased in to around reached Walgreens' the XX% that year, over we're last also sales on

James. back Now to

James Kehoe

Alex. update our I'll Cost now on you, Management Program. Thank you Transformational

announced multiple in cost While the us annual initiatives billion our targeting now were we're to gives and by confidence we clearer making a savings this of strong progress, We XXXX. in multi-year line target. to fiscal $X.X April, of cost a we have sight saving period increase excess over

fiscal to cost target in raising We $X.X XXXX. annual now are of the savings by excess billion

investments we capital rolling working the see into opportunity coming over program governance meaningful Additionally, and working are management cost programs we the reduce years. capital to

are X. filed estimates our the costs, versus X-K implementation Regarding we August unchanged on

in billion that management to estimate to continue We result And we pre-tax billion. GAAP charges the recently $X.X of program the approximately $X.X will cumulative rebranded cost program internally.

only to It's not fuel the Grow. capabilities growth. we more save needed This generate to Invest now called to dollars become Save emphasizes that the and costs long-term to but also investment reduce operator, to leanest must must we

policy spend of give Let quarter. some on me making in you the actions quick smart On a taken the we've started changes. update

For outcome-based. we example, competitive how more external the mandating we are contracts changing the consultants, and manage making bidding,

in restructuring office On Retail Wholesale last smart and divisions. underway is the our additional organization, reductions made we support U.S. International in Pharmaceutical week select and Pharmacy

road vision for our business working are to new define We map and also services. hard

IT for execution the U.K. to operations our well digital our under model both U.S. pharmacy biggest underway and completed leadership chief operating also footprint and have We've review hard and dedicated defined costs global working reorganized shrink. day-to-day information our digital fill our teams a the growth officer in are improve And a and new programs, and to We our refocused IT We've are the and against estate focus. priorities. to real the particularly of and spent we've our actions new IT

turn to XXXX. Now, let's

by for me upcoming start Let assumptions key the providing some year.

around the will of effective in level in This lap we billion. low items may this year. adjusted of year share by exceptionally full a adjusted growth vary projecting repurchases are anticipate the of on points tax rate We full an XX% EPS two discrete depending and approximately XXXX. fiscal We reduce $X.XX rate year percentage tax as

it repurchases indications. fiscal our is While in billion this of $X.X than is XXXX, consistent with entirely the lower prior

to Share growth. X.X% EPS repurchases contribute adjusted around should

in upgrading U.S. Within investing WBA, the transform foundational to systems including guidance, we are implementing modernizing and our SAP the pharmacy heavily core and

and in health investing also are new digital the and care retail. across that are have fully ongoing multiple pilots funded We capabilities we

million an XXXX, year. million million, year the expect we $XXX over million $XXX increase fiscal to to of In $XXX prior to $XXX invest

In XXXX expect expenses, in million terms million invest $XXX to a we million of increase to operating of $XXX $XXX million. $XXX year-on-year to

at summary, growth. future fiscal fiscal specifically of capital strategically $XXX to XXXX. are anticipate transform $XXX and modernize drive our Looking to expenditures, around top in investing capabilities we this comes investing In in we on million million and XXXX

in our Finally, the provided while appendix. internal rates don't have guidance, currency currency we we provide

As quite we we pound/dollar $X.XX time $X.XX. the year-on-year The at $X.XX. suggest moved you currency to will that, negative face situation estimates be of the rate external bit thing and only quite the sure The from range we a that is around in to a assumptions remain expect could of and can are see can these dated has impact U.K. fluid.

guidance to to our projecting for a plus should now growth of flat. a adjusted you of business XXXX, we size, adjusted expect for range are or EPS X%. minus EPS Turning constant-currency And be

lower negatively please EPS As adjusted that through of a models your headwind you note by growth XXXX this X.X%. payout and work is is bonus impacted a in year-on-year

performance As between second phasing potentially we at the for a and the year half EPS adjusted we XXXX, half. a stronger look first fiscal expect balanced slightly with second half

summarize impact XXXX this of fiscal projected operating rate headwind adjusted will and The has higher expense drivers payout Obviously now approximately an X.X%. negatively both key SG&A of impact income. tax a lower me to X%. the The bonus Let adjusted of leads EPS. impact year-on-year

X.X%. generate should program a repurchase share our of hand, favorable other around the On tailwind

within earlier incremental I are of growth X from impact point expect an and we removing X% this approximate these our funding and around tailwinds, investments number, Excluding of stores. from mentioned operational X% we X%; headwinds e-cigarettes around would percentage the

back now Stefano will I you for hand comments. closing to his

Stefano Pessina

surprised told what be delivered have we have we and here you today. quarter After our told doing what quarters. you second Nobody James. Thank two earnings, you, would we we for should by be poor

very heard, some we This underlying anticipate most a core line solid operating with have told you for year of underlying we in As with you performance growth is ago. in businesses. our reasonable months coming what the much

are transform our this we that pursuing gives priorities action our focus with ability strategic deliver the in our drive taken to have to teams our growth. businesses The and and me confidence which

of to expanded in significant the I in shaping our forward. a strongly a delivered community pharmacy believe in role in going and an part company's healthcare ability play how is

I build. remain mean, convinced real that we years investors we and extraordinary transformation on have will and which continue company in customers we many to The an underway deliver to our come. for value foundation all through partnerships work our currently can our our businesses, on to for innovation across and

Thank you.

questions. your take we Now will

Operator

[Operator first with question Instructions] Deutsche from comes Your Hill Bank. George

George Hill

Hey I and of growth all taking to back OP good fiscal for this James, struggle with takes, question. XXXX. are that X% you guess core a morning I looks out the morning the is the going guys. the X% if like puts guiding Thanks so one things it think to investors to company's in

growth on thinking of volume little about building particularly I I blocks walk for of business are guess to the what I kind is, XXXX? about maybe components company's a you you through are think bit reimbursement from how the for can in that And perspective the some fundamental guess big seeing growth. -- XXXX? how So question going a is be the of a

James Kehoe

Yes.

good question. a that's So

e-cigarettes, -- and puts you year of covering we headwind -- we've operating we've getting that XX. within a so to point also -- if out And as And the laid could strip slide the from So all you then we're prior out closer well, investments, you're out are these X%. the growth call actually so you once removed X%. the the takes, performance coming on X take percentage of bonus did around out

think business. wholesale in think should I the this relative you expect about way is, the So we stability

as revenue something So revenue on then you've segment, you'd only of mid-single-digit the be mark in sight that's year. performance declining probably looking look a at we And -- the the we RPI segment. the be flat at And flat seen you to until line current growth. question U.K. calling in the very I'd strong the market think to circumstances have I And see on improve

I coming this we think the year And rationalize contribution from then year is, U.S. this the had you in the way should U.S., Rite a Aid.

strong you of our kind we're I is contribution, outlook. think pretty remove If script the looking growth to forward

see secondly, business. continued the in And then we recovery retail

compared a on scripts we saw we very The the half. second pharmacy, first So, retail in half. strong a first on had with same strong exit recovery half,

of expect improved We trend. to the a see continuation

business. a that low revenue the So U.S. lead to single in would digit

something growth I So in the looking maybe I single think, think the X%. at look if you maybe company, total we're digit X%, low at revenue

and take close than way, Rite year thought relatively planned average, and we've planned we The number. out not Aid, you expect we same year And this of average on be the it slightly and last continued we've the to last the on reimbursement anymore pretty than giving three-year information three-year we're So XXXX is that. higher kind to get reimbursement higher reimbursement. conservatively tough about a

And cost that we program here impact. love to a comfort plus of similar have insights solid a the range, should a the mid-single-digit generic then pace a into that we on give plus gaining you of the that will continuing bonus we level of procurement at management leverage of growth, cost seen combination call-up confidence side give significant the lot us And up savings the I'm revenue how that – so get you talk this. cost you've with program gives to the is kind the to really a through ramping this and before know,

the base a to bit a the much give case. this past, confidence stronger deliver than us program to but reimbursement higher in little So cost

George Hill

line right flow that's expect be lot then that? helpful. way through it we reinvestment, James, opposed to think as guess bottom should follow-up my quick program that's the about see And would super to the guess it like sounds I of to cost to I a this

James Kehoe

why your on which you're million. $XXX basis because philosophy that circumstances you to going – question a interesting gross save incremental this and fill probably and won't X%, an at providing bottom if you you on you're know, costs, what offset thing call, be Yeah. your inflation. if the only think have for the of cost of an incremental growth – hits It's impact another company scripts. scripts that's if line. can company the the it's out. And a a is in the I size, is we you it about savings matters X% you on And then, And $XXX time that's million It's growing new work X%, every because you have this,

easily quite be can year, a $XXX million you're you before you start headwind. facing the So –

do hitting offset We're the And volume be how on previously as indicated strong the impact substantially of you've you lost. growth? And So seen, that inflation? How to first with second offset deliver. range stance that's helping cost what guidance higher The part. taken investments. I is you the want message one don't the a that's do the program we've And investments. us very

the we of the age XX% put we're pharmacy of gets investment SAP in have implementation that spending U.S. systems U.K. of have the year-on-year this hopefully where is somewhat new back quite in going company, in And investments, on the we of the So, the in magnitude and of systems we it year. some U.S. actually and the to the

the three to We enormous years, as over inventory we systems, take enormous. will implement next amount an of out be these able

systems for will these So themselves. pay

it to then, – and next second is do the is a pilot third The on are the – scale capabilities. the new every final pilots And digital call time starting piece up. we

– XX try funded. It have a of quite stores Kroger. reorganize money plus are costs and We the XX, These to fully all bit pilots. just on XX these

the the – for short dramatic in growth. the long to in. question to answer was pay investment profile drive that's business we're the overhead That's It's is sustainable company inflation. of the your step-change to long-term So

SG&A part discipline. finally term, the where longer volume offset growth [ph] model, as of drive to have is business cost procurement, and and by then savings, reimbursement [generic] We and

George Hill

very That's James. helpful. Thanks,

Operator

comes JPMorgan. question Lisa Next Gill from with

Lisa Gill

I the very to back expectation XXXX. strong around Rx much. just morning. go you Thank growth your want Good comment James, going to into

you talk did be on little secondly, you the anything else the that's some benefit is bit question? to about driving of for side of you're are but cetera, and my some in preferred these but any And with Medicare talked costs et programs first these about a You XXXX starting United, see giving? around pilot guidance the specifically that from there incremental relationship would pilots that initiatives then the

James Kehoe

Yeah.

you take more I'll you and quick let Let give answer me give one. a then – the Alex detailed

as point call Our the network months. are in where on had changes, were know lost that's previous half And is, we a we the it X.X%. scripts points if lapping second weak you XX these two the And scripts half. versus half second X%. first up we at half you very take running because the now first We were

then guess And investment scenario. at I as the that's profile, you the look upside

do flow. in we of do benefits sizable, the conservative. cost returns year executing We current We build quite internal so They're this on cash built our in have are We working initiatives. quite capital plans. expect the

just in On income pilots in the Any of we're how the next on can significant pilots themselves, We months. the become the building XXXX. have success. flows out will XX upside. on These and not play over see of three significant one to it next counting them be years depends the

Alex Gourlay

Hi, James. Morning. Lisa. Thanks,

Lisa Gill

morning. Good

Alex Gourlay

very have return normal we market the Med are driven we see small may I lost of some small Yeah, we that relationships regarding by D some they the fact in preferred preferred growth got plans. a prescription but think with of Morning. And with access, numbers to otherwise. the bigger

feel we good overall, pretty about So, that.

working with we going well. intend where on. saw in the more There's areas Centene, announcement still that Medicaid forward You we're be proactive as to space an

are all, customers. of we more able First retain to

a better mentioned I For our That's retention driving in Trip Save remarks. prepared Refill example, adherence.

of have least, a the normal not seeing We're pharmacies, pharmacies but good changing. to the pipeline able pharmacies in just in future secure a number in consolidate to last seem consolidate And U.S. of course, the long and is we'll Rite are on we as marketplace. of more first decline. marketplace we the than pharmacies not the And Aid able time to be that for be for the time

pretty market of we're these in terms or maybe -- ahead initiatives at all with that mark pharmacy of of the growth. So, overall confident somewhat the be we'll

Lisa Gill

just I And I a great. to follow-up sure this. just want as make Okay, understand

we growth about X%, So, of James X% you X%. topline of its think talked to operational roughly about

think reimbursement heard and correctly of you years. than that are So, higher the I is the saw in when -- about business it this about including this we're three make cuts just I reimbursement what think higher. leverage you to last cost-cutting talking And I want

So, line scripts on to are five X% of that It coming from, reimbursement. you a the I sounds have perspective that sight on get percentage range. X% going you're the Alex Do to is where Cost-cutting topline. that like all to correct? that conservative from you have to

James Kehoe

Yes.

track revenue The scripts. be Just the careful. doesn't

fairly your on still So, for of example, higher by have time more which that a than improve and over typically assume period -- and generic been I has improving will your not won't and long say amounts deflationary revenue. amount penetration impact a on deflationary improves will if much this, you major

scripts would be believe X% the So, we than X%. higher to that would

statement. So, much in there'll the income more be leverage

the So, of a X% of utilization it a assumption deflation revenue generics. X% includes call higher that for

Lisa Gill

Okay, Thank you. that's helpful.

Operator

with question Credit from Next Rice Suisse. comes A.J.

A.J. Rice

everybody. Hi

there higher comment inflation. XXXX. maybe brand improve you a Retail you for on what's the did comment where I what on you're for wonder embedded -- can and there's in get to saw you outlook if U.S. comment and we a your to year referring what to end know I up your reference in First, any Pharmacy

James Kehoe

Yes.

think We brand the X%, on -- year we constant a was the about of but the the trending it are basis in that average mix AWP. saw entire on over second We year. was half up

So, doesn't the actual have statement. assumption on brand on income a massive the AWP impact

planning the generic of number. the We're of the important, at more but are average kind year. Honestly, consumptions same much level we're planning the roughly

planning -- some not So, recent more been or where like has lot in of-- in touching a X%s X%. sort X% with months We're it on a the

Alex Gourlay

A.J. right Yes, that's

marketplace see and be the particular getting more and or at what you and look the as we're -- well less think I innovation year marked. in in this obviously

been with and increase agree we bit James. a next see banking trend happening So, a on A but the this going year. continuing not we're same year, it general I has to

James Kehoe

Yes.

A.J. Rice

or follow-up -- then second maybe And one. Okay. just

VillageMD, little I sure the those going the Humana, the going it positive, those unclear Is of the the but traffic? just ventures? the of pilots, earnings to How's want the from make LabCorp, foot I benefit that your when it's entities know percentage company swing from to Optum Is the contribution with is to themselves? stuff they're a understand. concept of On main I those and

James Kehoe

-- that case. it's the Yes, Each be up be mix. mix. envisage would different, that giving could space in does a be the a some a supplier a the is probably fairly partner standard store. of one It you there'll business does There's one will in contribution that share total we're that a slightly but in the because element rental case of

one have is quite existing the important models most we And of sophisticated then the case types businesses. the of where foot in traffic arguably benefit

testing pilots. there's scripts. That's So, we these and the see we're trying to know why uplifts on We're retail primary on a if both care.

So, you've got of income in cases. most three sources

agreement an contribution full time say basis favorable the already we're already every is capacity FedEx And isn't store. positive. negative basically. there we What's and we capital Already LabCorp contribution the touch we're investing a when income at delivers on is

So, negative. it's cash more a flow

as reset are to these to we already, XXX of of there's LabCorp the being expanded Some neutral out stores. roll each stores, the capital positive but

Alex Gourlay

A.J.

I think particularly important The was pharmacy. quite here just one additional thing. in

-- in a a is and a prescriptions patient pharmacist completely in but combination wee digital legal, really care. general care, also are additional platforms to that future working only pharmacy looking to will practitioner a not And care to provide alongside together see just we but not which that convinced having drives spoken digital the also about provides community. we lead better the in new a we've look as So,

and doctor-led So, model, but very idea of going partnership are we including about forward yes. pharmacist-enabled again, that its days, excited this in that early

A.J. Rice

Okay. great. Thanks. That's

Operator

Next Wells Securities. question Fargo Costa comes Peter from with

Peter Costa

talk solutions company? in Prime the AllianceRx business business? strategy bringing going you your little about a revenues Health your the forward to Thank Shields Walgreens And specialty what for more you. versus Can bit is Solutions specialty the

Alex Gourlay

moment. Yes, it's Alex here. that set the they think Sure. at Hi Peter, are I

with care with health community. as deal patients enable our me investment systems into let to start take walk they to to So, the Shields system better back in of health They with really that. the go

that them assets a care local working the that system, we number service both sure local pharmacies patient specialty where of also health more take and have We can in directly. of systems hospital to and want help make we with to

early that's Really a model. model community days, there. it's but So it's the

put ago. the course, with we're the business and growth the how course about the years Obviously, view point can which the is over business in work even Our looking with that work financial now from well, And two of forward model of the really very in very to but market contracts. changing we the business is owners and performing we've are of model Blues and working an Prime forward. just of central together the our their and clearly accelerate closer AllianceRX closely with operational mean, with going Blues particularly is

years think you in two I of marketplace stage, XX% and them if the in incredible new will at the in specialty separate areas of and course, drugs the specialty think three the importance ahead, So as years. this we of be recognize within of medication value the of

and So we partners. our of more with Walgreens brand individual mentioned, a of to both specialty how powerful course, piece, create we're but assets working all very -- combine time I've hard over the our model the on also

Peter Costa

in terms these Can you goal you more of you more strategy have flow help stream to going in a various us from concepts -- and how of from that is revenue terms clearer your what products specialty to in understand of deliver? of is the because

Alex Gourlay

the I the of -- there. central moment model go model, I'd back to terms the at the Well, one think which is in predominant

that it grow that been that want with model. pretty and year You with will Prime XX%. growth We in as this growth. grow our can reasonable to continue has a market And see

The other well. -- and of course, XXXB, again, is another area where as we're growing

pretty that's So clear.

Now years and again, faster we biggest, were lot than a not bigger but years two the than two growing ago we're we ago. we're were

We're closer Shields the closer and and be more want and develop, developing believe to payment We minority local specialty. a to their And more patients investment. new to we're one, that models. shareholder an stage community. and drugs the the as of With will taken model be early home care community it's there will

believe be suited we this too. So will model more

Peter Costa

tobacco is tobacco helpful. just that Or of tobacco year, further next you. the The in from the year's there next then Thank something. pressure? numbers? That's X% is e-cigarettes separately just clarify want And to of pressure only de-emphasis I

Alex Gourlay

continuing well cycle all by example -- see that when when was for out tobacco will for the We other – obviously, City action confirmed yet. similar may status coming vein, pharmacies in a of York we Xst and New we states we on take don't January know

that the to sales same tobacco but we we last next extent the on So the expect as continue months. in had pressure into year, not XX at

Peter Costa

Okay.

be that X%? will So that on top of

Alex Gourlay

Yes, think next particularly and not about will we've that we've tobacco, we X% year. seen normal less year but we New as as year this cycle be to This York. much seen as due

Peter Costa

you. Thank

James Kehoe

Yes.

only covers to actually. e-cigarettes, of the Just exit the X% confirm of X% EPS

Alex Gourlay

Yeah.

James Kehoe

of more in the on pressure the further retail line decline a of the tobacco. in a the have segment U.S. continued result as revenue would you And

Alex Gourlay

Yeah. yeah, than Yeah. ready, More yeah.

Peter Costa

Thank you very much.

Operator

comes question UBS. Kevin Caliendo with Next from

Kevin Caliendo

were sure and And reimbursement a those been you're to up, there little did I pharmacy what confused correctly. hear impact be wanted than were was comments the three I we I'm terms was coming bit had better that renewals wondering earlier of of in some that if morning hear thought referring made little reimbursement, make to you that as and -- might guidance? I that of years. PBM over one your And Did I be Good a just everyone. last the in that the to you expected correctly? it

James Kehoe

No, actually I'll say would PBM than there's the years. would last two three over I We average of correct XXXX there no. renewals probably exactly worse average than of main said years. higher And the be right. three-year worse it XXXX the you're is following percentage last The in will be that. why the be, would reasons than

Alex Gourlay

Yeah. Yeah.

James Kehoe

last that over the average So Yes. the reason planned exactly the it's way. that's than you're why years. worse we've few But right,

Alex Gourlay

They're It's perfect. been Okay. like more average. that's And moving from you the that commercial happened. know renewals on what's happening the three-year Medicaid bigger consolidation to -- And with and the more two-year renewals there's plans?

James' comments. the actually reason that's So for

Kevin Caliendo

follow-up. quick One

have going correct? about Is the just to comps I SilverScript. think if so done no And preferred longer you're can a that you might pharmacy in that forward? talk what

Alex Gourlay

open either been the position generally Our in changed. really hasn't or We've for a while. non-preferred quite in SilverScript's

So that changed. piece not has

Kevin Caliendo

you. Thank Okay.

Operator

Goldwasser Ricky Stanley. from comes question Morgan Next with

Ricky Goldwasser

direct morning. I'd savings. with the Hi. Yeah. Good it start

I said to generic reimbursement think offset be XX% the of XX% save by pressure savings. in to that to long-term the past you or plan is

So long-term when into you goal that think where you about are XXXX? now at

James Kehoe

range the XX%. in probably XX% to We're of

We As around generic based deflation change the we of I X%. said, visibility. frequently That's planning the saw latest quite assumptions mix-constant. XXXX on in

than the it that you in. changes would actually lower comes and if molecules include be all new that So

over a turn single think some the And generic numbers. of number to years kind next up high planned realistically consistent relatively deflation digit that, but we'll going of I digit. probably think double-digit we've I back with think three I don't single with years a is kind

of we terms to We're as in So of in how adjusted. range offset expect initiatives. the we through we've XX% reimbursement look of XX%, to procurement forward probably the much

Alex Gourlay

I answer And would sorry, – go. Ricky you

Ricky Goldwasser

ahead. go no, No,

Alex Gourlay

more just again customers we pharmacy. make got working drive pretty sight would spoke is another of good to line which We've increase component as efficiency. And call, the this that volume these will driving a develops savings important we we've we to say efficient the year improve of in that into I our earlier the and been well. on as hard protect sure

Ricky Goldwasser

is think XX% plan? to we So XX% to XX% XX% just XX% Or that you're in to is to XX% confirm this updated that to about XXXX? number long-term in when the achieve of going that that's

James Kehoe

a setting now. be specific ourselves goal too that's right to Yeah

if think I you can given get But by of, thoughts deflation our I you number. I plot out -- close you think. can, triangulate -- assume you can on to digit the generics single already think enough kind this if we've

Ricky Goldwasser

going were that we the you over time, strategy, the a when XXX to infrastructure few when modern U.S. compared about that ago think U.S. months announced What's infrastructure? you strategy you stores the type close Okay. think the of when we the the to in you've what store then Really it's of shaping existing? about is And in the needed term out, think multi-channel longer the think size

Alex Gourlay

of It's at although a see Alex Ricky. been here We pharmacies the I've lot formats. different have always today, can XX,XXX probably of change. that we have more we roundabout don't than view

drug big or health So today developing cities, that we We is that store a a urban have you suburban the small we're the see really that format pharmacy. store the in focus we I have store now ground. results, up actively in pleased cost more the and about we're XX the as with care pharmacy And OTC or think on and lower got pick XX well. obviously

that So we're format. developing

in got opportunities So to we fill some still networks.

XX,XXX going think also forward coming the pharmacies, are I thereabouts, number. And U.S. they're today -- down remember there and and in in

we IT getting of quality new chain, but to and digital and going pharmacists So through support investing strength we supply and percent will efficient we the and brand believe more efficiency our of the of quality provide payers the time. that our the they're capabilities our patients be have and able in just that of care U.S. pharmacy, pharmacies in forward the the infrastructures the the the improve over the that we're of not to

Ricky Goldwasser

you. Thank

Operator

Next Jefferies. with question Tanquilut comes Brian from

Brian Tanquilut

morning guys. Good

Just question to Ricky. from that a follow-up

than there, doing about but profile that like revenue margin profit FedEx, -- think margin dollars you're the gross commentary given of the we we going, gross margins? gross how you get should profit the a gross going the it where more per gross lot forward adding rather where services LabCorp, things guys be thinking I thinking of is a rent true are store how as dollars lot becomes So store? we profit the be Kroger, base should of or about obviously how about

Alex Gourlay

I much a from have front-end-business. not last profitability spoken we've know that view about do And we that's materially successful over Again period. a here. of Alex It's the improved Yeah. today, and point very

and rent both costs but are think think these advantage should a as of the we take view the down you for we years us of also rental today lot I that coming -- ahead. point over-rented of a that sure I think in in of leases space about fact coming So from towards terms we're as

of our intention and profit growth to sales dollars, forward. going profitable drive In is terms cost drive

know to James want opportunity? speak rental the about you don't I

James Kehoe

I think think place is to if you go about it the in first you the storage the though stores.

a of So these stories were physical location. was inventory in when lot in a the time built

plot you the the back-office. If inventory now out from stores in three be years no there'll in

X,XXX square feet So that per couple freed X,XXX, a up stores.

So the if the you space. storage back-office free piece of and the think it downsized about was the we've because first development

So impact the our on revenue throughput was minimal.

getting through we that of an partnerships there's science go into we're because as lot this. the And each uplift of a goes

losing the be don't to uplift a traffic, reduction losing you're increased massive -- see result we'll get if contrary. revenue the -- in as you're going the how sorry are this, a of So you your versus the some going to quite the in much shrink size think I space of from you retail footprint

where what weren't So is where money. categories more some probably efficient you're to up a end dedicating box space much you less making you very with

of You've rid your gotten storage.

who value-added got that foot a more per rid traffic got sales you've then ideally services efficient different attracting of in your there. You are gone a square customers back-office. and foot. your has as And of And result up

So I don't think you'll see the revenue.

think right. I is Alex

long-term over lease then locations, a have that we mind and revenue for we're see nicest bear you'll the you rent. versus in that a with best potentially were overpaid the our think ago into bit. places the what quite so entered And the in contracts I find it's change probably rented, the probably years see And a in big competitors, consistent opportunity company improving. we

it. what's at gives you the I over So as in of each the each make the forward that we reductions stores. insights you horizon, in multiyear efficient rent. on material consistent of in quite we hope look would a cost expect then more enough And store time, same

Brian Tanquilut

that's No great.

Just my follow-up.

-- any to there clear? want aware changes we're As we so just XXXX, that is are you need call about network out think it you to of? Or

Alex Gourlay

conversation which their of taken got the aware clear. there's were make we weekend, this up games but I other to been other think But – in networks. have decision -- few high ago. there's have I CareSource that It's recognize been a weeks that the obviouslym are pretty decision mean, that's over to we Disappointed take.

it's and grow So pretty very the over we the XXXX. market confident in year think to we're balanced in our ability

Gerald Gradwell

time am for I more question have We afraid. just one

Operator

with Steve Barclays. have We question a Valiquette from

Steve Valiquette

Good thanks. Great, morning.

the in clinical influence Walgreens your or and/or curious on services some whether these the services investors of strategy just marketing hear lower a Walmart over guess clinical your offering competition, of announcing thoughts primary of strategy high-level and your prices a among So pricing at the may the big to be push own I this with years. timing at that couple services Walmart than I'm may care perception next rollout

primary And Thanks. then on this, stage? positive on for the the could the greater all overall really and -- setting plus Walgreens in at be just the of the notion care side of net early offerings visibility players traditional retail maybe this a

Alex Gourlay

in more care Yes. like a in we've on help And health huge got we've there well and think, because, got strong, a we focus on a think focus XXX company be that successful community health great happens they we do more that'll us we've pharmacy brand. that Walmart place We then it's better relationships. and got locations. it No, Steve. think involved good retail Thanks, in move to care for as

continue an morning. So, James own described strategy, have going developing our overall, to and we to we'll this think way with in the I advantage investing us. that that's and be And

Steve Valiquette

Thanks. Great. Okay.

Stefano Pessina

we very physical to that transformation wanted wanted we of small there wanted and not services sometimes more our declared you feeling. things public offering you create see, Having complete relationship a different and to have doing to open that we to that model ago are customers, this and see that change can this we been and You but a just -- that we our here we really our can give more already customers with the pharmacies have model. what our is give are change

this And that stores, in the you you advanced, the to done your see something company a can and assure we but new of you roll outside have to huge amount can the change than because to capital. concept, coming you company. is everybody you more are invest over advanced we a I quite of lot have ideas Now, tests when

that tests And our the give are so are to And we you behind this so doing things. and to reliable doing this right have we sure, scenes is right you working why, in that why, prepare return us something is are way. be future a many the the in could

see to everybody's outside ago, saw advanced working more, the we that years believe this going that three And on other So, though at maybe clearly are what company. two even that. is end are is we direction are because we ago. years understandable this we And than more people we this worried not into the not

Steve Valiquette

Thanks. Thank you. appreciate I color. the extra

Gerald Gradwell

the on time haven't, questions, but Thank for your you, that's I have call. Stefano. answered we And all know all we do

the today. IR all us here further to and are Jay take for ever you As have off thank joining you team any call, questions but

Operator

Ladies participating. conference for today's and concludes gentlemen, Thank you this call.

You may now disconnect.

Walgreens Boots Alliance (WBA) 28 Oct 192019 Q4 Earnings call transcript