- Adjusted first quarter earnings per
diluted share increase 24.1 percent to 72 cents, compared with
adjusted earnings per diluted share of 58 cents in year-ago
quarter; GAAP earnings per diluted share increase 66.1 percent to
72 cents compared with 43 cents in last year’s first quarter
- GAAP and adjusted net earnings in this
year’s quarter include the positive impact of 7 cents per diluted
share attributable to a deferred tax adjustment applicable to
Alliance Boots
- Adjusted first quarter earnings
increase 24.4 percent to $688 million, compared with adjusted
earnings of $553 million in year-ago quarter; GAAP earnings
increase 68.3 percent to $695 million compared with $413 million in
last year’s first quarter
- First-quarter sales reach record $18.3
billion as comparable store front-end sales increase 2.4 percent
and retail prescription market share increases 50 basis points
compared with year-ago quarter to 19.4 percent
- Strong focus on cost management limits
adjusted selling, general and administrative expense dollar growth
to 0.4 percent compared with the year-ago quarter; GAAP SG&A
dollar growth decreases 0.4 percent compared with last year’s first
quarter
Walgreen Co. (NYSE: WAG) (Nasdaq: WAG) today announced earnings
and sales results for the first quarter of fiscal year 2014 ended
Nov. 30.
Net earnings determined in accordance with generally accepted
accounting principles (GAAP) for the fiscal 2014 first quarter were
$695 million, a 68.3 percent increase from $413 million in the
year-ago quarter. Net earnings per diluted share for the quarter
increased 66.1 percent to 72 cents, compared with 43 cents per
diluted share in the year-ago quarter.
Adjusted fiscal 2014 first quarter net earnings were $688
million, a 24.4 percent increase from $553 million in the same
quarter a year ago. Adjusted net earnings per diluted share for the
quarter increased 24.1 percent to 72 cents, compared with 58 cents
per diluted share in the year-ago quarter. This year’s adjusted
first quarter results exclude the negative impact of 6 cents per
diluted share in acquisition-related amortization, 4 cents per
diluted share from the quarter’s LIFO provision, 3 cents per
diluted share in Alliance Boots related tax and 2 cents per diluted
share in other acquisition related costs. Also excluded is the
positive impact of 17 cents per diluted share in fair value
adjustments and amortization related to the company’s warrants to
purchase AmerisourceBergen’s common stock. In addition, as
Walgreens positions itself to operate on a global platform in
connection with its option to acquire the remaining equity interest
in Alliance Boots and its strategic partnership with
AmerisourceBergen, it is assessing various steps to optimize its
assets and cost structure. Initiatives implemented in the fiscal
2014 first quarter resulted in a 2 cents per diluted share negative
impact excluded from adjusted results.
GAAP and adjusted net earnings in this year’s quarter include
the positive impact of 7 cents per diluted share attributable to a
deferred tax adjustment resulting from a reduction to the U.K.
corporate tax rate applicable to Alliance Boots, which was enacted
in July 2013.
Last year’s adjusted first quarter results exclude the negative
impact of 6 cents per diluted share in acquisition-related
amortization, 4 cents per diluted share from the quarter’s LIFO
provision, 3 cents per diluted share in costs related to Hurricane
Sandy, and 2 cents per diluted share in other acquisition related
costs.
“Given the continued soft economy, we were generally satisfied
with our top-line growth where we increased both traffic and sales
for the quarter as well as our pharmacy market share,” Walgreens
President and CEO Greg Wasson said. “However, the year-over-year
negative impact related to generics, including the significant
shift in the generic wave from a peak a year ago to a trough this
quarter as well as our strategic decision to make meaningful
promotional investments in our daily living business, affected our
margins for the quarter. That said, by continuing our strong focus
on managing our expenses, we were able to continue growing gross
profit dollars faster than costs during the quarter.”
Alliance Boots contributed 14 cents per diluted share to
Walgreens first quarter 2014 adjusted results, including 7 cents
per diluted share attributable to the deferred tax adjustment
described above. The company estimates that the accretion from
Alliance Boots in the second quarter of fiscal 2014 will be an
adjusted 7 to 8 cents per diluted share. This estimate does not
include amortization expense, the impact of AmerisourceBergen
warrants or one-time transaction costs, and reflects the company’s
current estimates of IFRS to GAAP conversion and foreign exchange
rates.
The combined synergies for Walgreens and Alliance Boots in the
first quarter were approximately $107 million.
FINANCIAL HIGHLIGHTS
Sales
First quarter sales increased 5.9 percent from the prior-year
quarter to a record $18.3 billion. Front-end comparable store sales
(those open at least a year) increased 2.4 percent in the first
quarter, customer traffic in comparable stores increased 0.2
percent and basket size increased 2.2 percent, while total sales in
comparable stores increased 5.4 percent.
Prescription sales, which accounted for 64.7 percent of sales in
the quarter, increased 7.3 percent, while prescription sales in
comparable stores increased 7.2 percent. The company filled a
record 213 million prescriptions in the quarter, an increase of 5.8
percent over last year’s first quarter. Prescriptions filled in
comparable stores increased 5.5 percent in the quarter. The company
exceeded by 2.9 percentage points the prescription growth rate of
the rest of the industry during the same period as reported by IMS
Health. As of Nov. 30, Walgreens increased its retail prescription
market share 50 basis points from a year ago to 19.4 percent, also
as reported by IMS Health on a 30-day adjusted basis.
Gross Profit and SG&A
GAAP total gross profit dollars in the first quarter increased
$53 million, or 1.0 percent, compared with the year-ago
quarter, with gross profit margins decreasing 1.3 percentage
points versus the year-ago quarter to 28.1 as a percentage of
sales. Adjusted gross profit dollars increased $61 million, or 1.2
percent, compared with the year-ago first quarter.
The decrease in GAAP margins was driven primarily by fewer new
generic drugs entering the market compared with the year-ago
quarter. Front-end margins were lower as the company made
meaningful promotional investments throughout the quarter to drive
store traffic. The LIFO provision was $58 million in this year’s
first quarter versus $55 million last year.
GAAP selling, general and administrative expense dollars
decreased $19 million or 0.4 percent compared with the year-ago
quarter. New store expenses added 1.3 percentage points to SG&A
expenses in the quarter, costs associated with optimizing the
company’s cost structure and asset base added 0.4 percentage point,
and comparable store expense added 0.3 percentage point. These
expenses were offset by lower headquarters and acquisition related
costs of 1.2 percentage points and 0.3 percentage point,
respectively. In addition, Hurricane Sandy costs in the prior
year’s quarter were 0.9 percentage point. Adjusted selling, general
and administrative expense dollars increased $17 million, or 0.4
percent, compared with the year-ago quarter.
In the first quarter, the company opened or acquired 84 net new
drugstores compared with 128 in the year-ago quarter.
The company generated operating cash flow of $133 million in the
first quarter compared with $601 million in the year-ago quarter.
The decrease was primarily the result of the timing of working
capital changes associated with the company’s transition to
AmerisourceBergen.
Milestones and Looking Ahead
Other company highlights in advancing Walgreens three key
strategies in the first quarter include:
Creating the Well Experience
- Opening or converting 87 Well
Experience stores to bring the total to 600.
- Processing 70 percent of front-end
sales in November through the Balance® Rewards loyalty program,
which totals 74 million active members.
- Completing its acquisition of certain
assets of Kerr Drug’s retail drugstores and specialty pharmacy
business.
- Opening in Evanston, Ill., what the
company believes will be the nation’s first net zero energy retail
store. The store is anticipated to produce energy equal to or
greater than it consumes.
Transforming Community Pharmacy
- Filling a record 213 million
prescriptions in the quarter.
- Administering 6.7 million immunizations
in the quarter, compared with 5.0 million immunizations in the year
ago period.
- Taking the next step in Theranos and
Walgreens planned national rollout of Theranos Wellness Centers by
opening two new centers at Walgreens stores in the Phoenix area. A
Theranos Wellness Center also is located at a Walgreens store in
Palo Alto, Calif.
- Expanding on a unique collaboration
with Johns Hopkins Medicine with the opening of a new Walgreens
store adjacent to the JHM campus. Walgreens also is providing
initial funding for the new Brancati Center for the Advancement of
Community Care, which will develop and test new models of
collaborative care to improve the health of communities using the
unique skills of pharmacists, nurse practitioners and others.
- Receiving accreditation for its
Healthcare Clinics at select Walgreens stores nationwide from the
Accreditation Association for Ambulatory Health Care (AAAHC).
- Receiving the American Hospital
Association’s (AHA) exclusive endorsement of Walgreens Well
Transitions® for the program’s push for greater medication
adherence. The innovative, coordinated care program aimed at
improving medication adherence has demonstrated reductions in
hospital readmission rates by helping patients better understand
prescription therapies during and after discharge.
Establishing an Efficient Global Platform
- Successfully beginning implementation
on Sept. 1 of a 10-year agreement with AmerisourceBergen for
pharmaceutical distribution.
- Launching several Boots product brands,
including No7, across Walgreens stores in the Phoenix market.
Previously, three other Boots product brands were launched
nationally in Walgreens stores, including No7 Men, Mark Hill Salon
Professional and Indeed Laboratories.
- Advancing Walgreens and Alliance Boots
joint vision with the appointment of Richard Ashworth as healthcare
director, Health & Beauty U.K. and Republic of Ireland, for
Alliance Boots. Previously, Ashworth was Walgreens corporate
operations vice president for the western United States. In
addition, Walgreens advanced its digital strategy by naming current
President of E-commerce Sona Chawla as president of digital and
chief marketing officer.
“In the second quarter, we will be taking further steps to
balance front-end sales and margin,” said Wasson. “In terms of
pharmacy margin, we expect the effect of the trough in the generic
wave to be similar to the first quarter while moderating during the
balance of the fiscal year. We also expect our results related
to seasonal flu next quarter to reflect comparisons to the same
period last year, which was one of the most active flu seasons in
the last 15 years. We will continue our sharp focus on expense
management as we address the challenging environment, and we expect
to realize the synergies from our strategic partnership consistent
with our previously stated goal.”
As of Nov. 30, 2013, Walgreens operated 8,681 locations in all
50 states, the District of Columbia, Puerto Rico, Guam and the U.S.
Virgin Islands. The company has 8,200 drugstores nationwide
including Duane Reade stores, 142 more than a year ago. Walgreens
also operates worksite health and wellness centers, infusion and
respiratory service facilities, specialty pharmacies and mail
service facilities. Its Take Care Health Systems subsidiary manages
more than 750 in-store convenient care clinics and worksite health
and wellness centers. Walgreens e-commerce business includes
Walgreens.com, drugstore.com, Beauty.com, SkinStore.com and
VisionDirect.com.
Walgreens will hold a one-hour conference call to discuss the
first quarter results beginning at 8:30 a.m. Eastern time today,
Dec. 20. The conference call will be simulcast through Walgreens
investor relations website at: http://investor.walgreens.com. A replay of the
conference call will be archived on the website for 12 months after
the call. A podcast also will be available on the investor
relations website.
The replay also will be available from 11:30 a.m. Eastern time,
Dec. 20 through Dec. 27 by calling 855-859-2056 within the U.S. and
Canada, or 404-537-3406 outside the U.S. and Canada, using replay
code 12973672.
Cautionary Note Regarding Forward-Looking Statements. Statements
in this release that are not historical, including, without
limitation, estimates of future financial and operating
performance, including the amounts and timing of future accretion
and synergies, are forward-looking statements made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. Words such as "expect," "likely," "outlook,"
"forecast,” "would," "could," "should," "can," "will," "project,"
"intend," "plan," "goal," “target,” "continue," "sustain,"
"synergy," "on track," "believe," "seek," "estimate," "anticipate,"
"may," "possible," "assume," variations of such words and similar
expressions are intended to identify such forward-looking
statements. These forward-looking statements are not guarantees of
future performance and involve risks, assumptions and
uncertainties, including, but not limited to, those relating to our
commercial agreement with AmerisourceBergen, the arrangements and
transactions contemplated by our framework agreement with
AmerisourceBergen and Alliance Boots and their possible effects,
the Purchase and Option Agreement and other agreements relating to
our strategic partnership with Alliance Boots, the arrangements and
transactions contemplated thereby and their possible effects, the
parties' ability to realize anticipated synergies and achieve
anticipated financial results, the risks associated with
transitions in supply arrangements, the risks associated with
international business operations, the risks associated with
governance and control matters in minority investments, whether the
option to acquire the remainder of the Alliance Boots equity
interest will be exercised and the financial ramifications thereof,
the risks associated with equity investments in AmerisourceBergen
including whether the warrants to invest in AmerisourceBergen will
be exercised and the financial ramifications thereof, changes in
vendor, payer and customer relationships and terms, changes in
network participation, the implementation, operation and growth of
our customer loyalty program, changes in economic and market
conditions, competition, risks associated with new business areas
and activities, risks associated with acquisitions, joint ventures
and strategic investments, the ability to realize anticipated
results from capital expenditures and cost reduction initiatives,
outcomes of legal and regulatory matters, and changes in
legislation or regulations. These and other risks, assumptions and
uncertainties are described in Item 1A (Risk Factors) of our most
recent Annual Report on Form 10-K, which is incorporated herein by
reference, and in other documents that we file or furnish with the
Securities and Exchange Commission. Should one or more of these
risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially
from those indicated or anticipated by such forward-looking
statements. Accordingly, you are cautioned not to place undue
reliance on these forward-looking statements, which speak only as
of the date they are made. Except to the extent required by law,
Walgreens does not undertake, and expressly disclaims, any duty or
obligation to update publicly any forward-looking statement after
the initial distribution of this release, whether as a result of
new information, future events, changes in assumptions or
otherwise.
Please refer to the supplemental information presented below for
reconciliations of the non-GAAP financial measures used in this
release to the most comparable GAAP financial measure and related
disclosures.
WALGREEN CO. AND SUBSIDIARIES CONSOLIDATED
CONDENSED STATEMENTS OF EARNINGS (UNAUDITED) (In
Millions, Except Per Share Amounts) Three
Months Ended November 30, November 30, 2013 2012
Net sales $ 18,329 $ 17,316 Cost of sales (1) 13,177
12,217 Gross Profit 5,152 5,099 Selling,
general and administrative expenses 4,379 4,398 Equity earnings in
Alliance Boots 151 4 Operating Income
924 705 Interest expense, net 41 37 Other income 225
- Earnings Before Income Tax Provision 1,108
668 Income tax provision 404 255 Net
Earnings 704 413 Net earnings attributable to noncontrolling
interests 9 - Net Earnings Attributable
to Walgreen Co. $ 695 $ 413 Net earnings per common
share attributable to Walgreen Co.: Basic $ .73 $ .44
Diluted $ .72 $ .43 Dividends declared $ .3150
$ .2750 Average shares outstanding 949.3 945.3
Dilutive effect of stock options 12.2 5.9
Average Diluted Shares 961.5 951.2
Percent of Sales Net sales 100.0 % 100.0 %
Cost of sales 71.9 70.6 Gross Margin
28.1 29.4 Selling, general and administrative expenses 23.9 25.4
Equity earnings in Alliance Boots 0.8 -
Operating Income 5.0 4.0 Interest expense, net 0.2 0.2
Other income
1.2 - Earnings Before Income Tax
Provision 6.0 3.8 Income tax provision 2.2 1.4
Net Earnings 3.8 2.4 Net Earnings attributable to
noncontrolling interests - - Net
Earnings Attributable to Walgreen Co. 3.8 % 2.4 %
(1) Fiscal 2014 first quarter includes a LIFO provision of
$58 million versus $55 million in the previous year.
WALGREEN CO. AND SUBSIDIARIES CONSOLIDATED CONDENSED
BALANCE SHEETS (UNAUDITED AND SUBJECT TO
RECLASSIFICATION) (In Millions)
November 30, November 30, 2013 2012 Assets
Current Assets: Cash and cash equivalents $ 969 $ 1,829 Accounts
receivable, net 2,727 2,264 Inventories 7,729 7,821 Other current
assets 297 248 Total Current Assets 11,722 12,162
Non-Current Assets:
Property and Equipment, at cost, less
accumulated depreciation and amortization
12,351 12,110 Equity investment in Alliance Boots 6,439 6,112
Alliance Boots call option 856 876 Goodwill 2,491 2,404 Other
non-current assets 2,622 1,595 Total Non-Current
Assets 24,759 23,097 Total Assets $ 36,481 $ 35,259
Liabilities and Equity Current Liabilities: Short-term borrowings $
571 $ 1,316 Trade accounts payable 4,762 4,821 Accrued expenses and
other liabilities 3,210 3,028 Income taxes 278 155
Total Current Liabilities 8,821 9,320 Non-Current
Liabilities: Long-term debt 4,501 5,069 Deferred income taxes 778
559 Other non-current liabilities 2,325 1,932 Total
Non-Current Liabilities 7,604 7,560 Equity
20,056 18,379 Total Liabilities and Equity $
36,481 $ 35,259
WALGREEN CO. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED AND SUBJECT TO RECLASSIFICATION) (In
Millions) Three Months Ended
November 30, 2013 2012 Cash flows from operating activities:
Net earnings $ 704 $ 413
Adjustments to reconcile net earnings to
net cash provided by operating activities -
Depreciation and amortization 332 313 Change in fair value of
warrants and related amortization (225 ) - Deferred income taxes
129 30 Stock compensation expense 21 20 Earnings in equity method
investments (151 ) (4 ) Other 94 43 Changes in operating assets and
liabilities - Accounts receivable, net (74 ) (98 ) Inventories (815
) (698 ) Other current assets (12 ) 14 Trade accounts payable 97
389 Accrued expenses and other liabilities (232 ) (15 ) Income
taxes 190 194 Other non-current assets and liabilities 75
- Net cash provided by operating activities
133 601 Cash flows from
investing activities: Additions to property and equipment (364 )
(336 ) Proceeds from sale of assets 14 10 Business and intangible
asset acquisitions, net of cash received (243 ) (471 ) Purchases of
short term investments held to maturity (19 ) - Proceeds from short
term investments held to maturity 19 - Investment in
AmerisourceBergen (290 ) - Other (42 ) (12 ) Net cash
used for investing activities (925 ) (809 )
Cash flows from financing activities: Net proceeds from issuance of
debt - 4,000 Payments of long-term debt - (3,000 ) Stock purchases
(205 ) (50 ) Proceeds related to employee stock plans 173 45 Cash
dividends paid (298 ) (260 ) Other (15 ) 5 Net
cash (used for) provided by financing activities (345 )
740 Changes in cash and cash equivalents: Net
(decrease) increase in cash and cash equivalents (1,137 ) 532 Cash
and cash equivalents at beginning of year 2,106
1,297 Cash and cash equivalents at end of period $
969 $ 1,829
WALGREEN CO. AND
SUBSIDIARIES SUPPLEMENTAL INFORMATION (UNAUDITED)
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(In millions, except per share
amounts)
The following information provides
reconciliations of the supplemental non-GAAP financial measures, as
defined under SEC rules, presented in this press release to the
most directly comparable financial measures calculated and
presented in accordance with generally accepted accounting
principles in the United States (GAAP). The company has provided
these non-GAAP financial measures in the press release, which are
not calculated or presented in accordance with GAAP, as
supplemental information and in addition to the financial measures
that are calculated and presented in accordance with
GAAP. These supplemental non-GAAP financial measures are
presented because management has evaluated the company’s financial
results both including and excluding the adjusted items and
believes that the supplemental non-GAAP financial measures
presented provide additional perspective and insights when
analyzing the core operating performance of the Company’s business
from period to period and trends in the company’s historical
operating results. These supplemental non-GAAP financial
measures should not be considered superior to, as a substitute for
or as an alternative to, and should be considered in conjunction
with, the GAAP financial measures presented in the press
release.
Three months ended
November 30, November 30, 2013 2012 Net earnings
attributable to Walgreen Co. (GAAP) $ 695 $ 413 Acquisition-related
amortization 58 59 LIFO provision 37 34 Alliance Boots related tax
add-back 28 - Acquisition-related costs 16 23 Organizational
efficiency costs 15 - Hurricane Sandy costs - 24 Increase in fair
market value of warrants (161 ) - Adjusted net
earnings attributable to Walgreen Co. $ 688 $ 553 Net
earnings per common share – diluted (GAAP) $ 0.72 $ 0.43
Acquisition-related amortization 0.06 0.06 LIFO provision 0.04 0.04
Alliance Boots related tax add-back 0.03 - Acquisition-related
costs 0.02 0.02 Organizational efficiency costs 0.02 - Hurricane
Sandy costs - 0.03 Increase in fair market value of warrants
(0.17 ) - Adjusted net earnings per common share – diluted $
0.72 $ 0.58 Three months ended November 30,
November 30, 2013 2012 Gross profit (GAAP) $ 5,152 $ 5,099 LIFO
provision 58 55 Organizational efficiency costs 5
- Adjusted gross profit $ 5,215 $ 5,154 Adjusted
gross profit growth 1.2 % Selling, general and
administrative expenses (GAAP) $ 4,379 $ 4,398 Acquisition-related
amortization 70 74 Acquisition-related costs 25 37 Organizational
efficiency costs 19 - Hurricane Sandy costs -
39 Adjusted selling, general and administrative expenses $ 4,265
$ 4,248 Adjusted selling, general and administrative
expenses growth 0.4 %
Walgreen Co.Media Contact:Michael Polzin, 847-315-2920orInvestor
Contacts:Rick Hans, CFA, 847-315-2385orAshish Kohli, CFA,
847-315-3810http://news.walgreens.com@WalgreensNewsfacebook.com/Walgreens
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