Walgreens Boots Alliance (WBA): Investments in digital capabilities help drive growth

Shares of Walgreens Boots Alliance (NASDAQ: WBA) have gained over 25% in the past three months and 10% over the past one month. The company reported better-than-expected results for the first quarter of 2021 a day ago and has also been taking strategic initiatives to transform its business and drive growth.

Quarterly performance

Walgreens saw a 5.7% growth in sales to $36.3 billion while adjusted EPS fell 11.2% to $1.22, hurt by an adverse COVID-19 impact of $0.26-0.30. Due to a surge in COVID-19 incidences and increased restrictions in its markets, the company estimates its adjusted operating income to have been impacted by approx. $290-325 million which was worse than its guidance range of $250-300 million but better than the third and fourth quarters of last year.

Within its Retail Pharmacy USA business, sales increased 3.9%. Comparable stores sales rose 3.7% year-over-year despite negative impacts from COVID-19 such as lower foot traffic in stores, weak retail cough, cold and flu sales, lower seasonal flu scripts and reduced new-to-therapy scripts.

Pharmacy sales grew 5.9% YoY, reflecting lower generic utilization, script growth and a 13% growth in central specialty. Comparable pharmacy sales grew 5% while comp scripts rose 2.7%. There was a significant decrease in doctor visits compared to pre-COVID-19 levels and a weaker cough-cold-flu season led to a 25% decline in seasonal flu scripts.

The Retail Pharmacy International business continued to be impacted by COVID-19 as incidence rates spiked and lockdowns increased across several geographies, leading to an 8.2% decline in sales. Boots UK saw significantly low footfall compared to last year, with retail store transactions down 40% year-over-year.

Digital growth

Walgreens continues to invest in its digital capabilities and fulfillment services which helped it improve its service during the pandemic. The company currently operates a meaningful amount of its business digitally and provides various fulfillment options including pickup, in-store, drive-thru, curbside collection and home delivery.

Within Boots UK, its store-based online fulfillment portal, or hybrid stores, now operates in 121 stores and in November, supported over 30% of all online orders. Online sales in November nearly doubled compared to last year. Boots.com witnessed sales growth of 106% in Q1, accounting for 23% of total UK retail sales.

Strategic actions

As part of its strategic initiatives, Walgreens is increasing its investment in VillageMD to open 600-700 Village Medical at Walgreens primary care clinics in over 30 US markets within the next four years with plans to expand further.

Walgreens also announced the sale of its Alliance Healthcare businesses to AmerisourceBergen (NYSE: ABC) for approx. $6.5 billion. This will allow the company to focus on the expansion of its retail pharmacy business. The deal will be mildly dilutive to adjusted EPS by approx. $0.02 in FY2021 but is expected to be accretive in the longer term.

Click here to read the full transcript of Walgreens Boots Alliance Q1 2021 earnings conference call