Q2 2020 Earnings Call
<unk> standing by and welcome to Walgreens Boots Alliance incorporated second quarter 2020 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 to ask a question. During this session you will need to press star one on your telephone keypad. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero on your Touchtone phone.
Thank you I would now like to hand, the conference over to your speaker today Gerald Gradwell for the prepared remarks. Please go ahead.
Good morning, ladies and gentlemen, congratulations globally.
We have always this blog.
It is recommending to the differences in the beginning of Colo executives in different locations at all from today with US if you experience any minor delays on the fuel vehicles Nicole.
On the line with me today is that made the senior executive Vice Chairman and Chief Executive Officer, Walgreens Boots Alliance.
End of.
Our global treatment actionable.
I'm not exactly how many people break through woman who Florida.
Before Android Stefano to make some opening comments I will let me take you through the legal sleepover. Unfortunately, there correct.
Certain statements and projections of future results made in this presentation constitute forward looking statements that are based on our current market competitive and regulatory expectations are subject to risks and uncertainties that could cause actual results could vary materially.
We undertake no obligation to update publicly any forward looking statement. After this presentation, whether as a result, new information future events changes in assumptions or otherwise.
Please see our latest form 10-K for discussion of risks factors as they relate to forward looking statements I know in particular that these forward looking statements may be affected by risks related to the spread an impact of the corona virus quite a bit 19 pandemic.
In today's presentation, we will use certain non-GAAP financial measures.
Well, usually appendix in the presentation materials available on our Investor Relations website for reconciliations to the most directly comparable GAAP financial measures and related information.
You'll find a link to the webcast on our Investor Relations website, I didn't best adult Walgreens Boots Alliance Dot com.
After the call this presentation and webcast will be archived on the website to 12 month.
I'll now hand derivative settlements.
Thank you Jonathan.
Good morning, everyone.
Joining me today and they want the things they focus on video about Kabi 19, something here.
If you would it make I'll tell you always see as to be to protect the as they weren't being around customer endo people.
As we fall someplace else docket to address the needs of the communities we said.
Hey.
The key basket the healthcare system in many countries around the world.
Following five of the timeline or ask Andy.
Our teams are working tirelessly to provide legacy incentivized to opaque and bring to the supply chain. Okay. They said when it's possible indeed, a design build to outdoor power and our other than seen customers.
So I want to stop today, they are thinking about selector.
And on behalf of my fellow management, the board member Oh debt outstanding desktop and dedication.
Despite the frequently see good extremely challenging situations, but instead of these over their communities.
Tender for our customers I want to actually it we will continue to work out to add to man I tell you, okay and get to these daily to sometimes.
As I said alongside the whole hours technically EE and.
And be difficult on facilitating didn't call if anything got response.
For the current Sunday, new companies in two weeks.
We continue to do so do you can see that end does the weekend to me.
I can actually despite the challenges that would be difficult time, we continue to exercise our U.S wealth management control over all areas of our company.
That's it and you have seen from our announcement today, we have Ed woo slightly ahead of our expectation.
Jay So these days in Q2 things in a moment.
And we have continued to make good guy in the delivery of our schools that did you say yuppies.
Which we remain convinced you have the capabilities to meet the around business.
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Hi, Good luck, we deal with the immediate family piece that we continue to believe that out strategic initiative in the eyes of company for World. However, the current situation may lead to some delays that either work to the new.
We reported second quarter four months are demonstrating the company's war going on track.
To deliver against how is the station now for the full year.
The peace However, Maxwell to consider the full financial impact of the actions we are taking them.
Yes, the government advisors and James please.
I will ask Jason to give you an overview of the second quarter was up then entirely we discussed the impact of Cogs 95 gig monkeys, Stefano and good morning.
Adjusted EPS was $1.52 cents and the second quarter.
7.3% lower than prior year on a constant currency basis.
Overall.
Second quarter came in better than we expected.
What's the upside coming from our U.S. retail business and better cost management in the U.S.
I'm I flagged on her last earnings call, we were facing two major headwinds in the second corker.
The year on your bonus impact.
The true up of a reimbursement contract.
Hi highlight of the second quarter adjusted EPS headwind.
Around 13% for these two items combined.
In retail pharmacy, USA, we delivered sequential improvements in both prescription growth retail comps.
Retail pharmacy international continued to be held back by a challenging UK market.
And pharmaceutical wholesale delivered yet another strong set of results.
The transformational cost management program remains very much on truck and we continue to expect annual cost savings in excess of $1.8 billion by 2022.
I was with her first quarter cash generation was very strong in the second quarter.
Free cash flow for the first half of the year was $1.8 billion.
And this was almost $1.4 billion better than prior year.
Turning now to guidance.
Definitely has already mentioned that we were well on track to confirm our full year adjusted EPS guidance.
Second quarter EPS was ahead of our expectations.
We delivered sequential improvement in our U.S. sales comps a majority of our business initiatives we're on track.
Including cash generation and the transformation was cost management program.
However, given the money rapidly changing variables related to the covert 19 pandemic.
Right now we're not in a position to accurately forecast to future impacts of covert 19.
Well the situation as temporary.
It is quite difficult to develop and form projections about the severity and duration across multiple markets.
I will come back to the covert 19 topic in a few minutes.
Let's now look at in more detail, let the results.
Second quarter sales were up 3.7%, including an adverse currency impact of 0.4%.
On a constant currency basis sales rose, 4.1%, including a headwind from store optimization of around 0.5%.
We did see increased demand in the last few days of the Corker as a result of the covert 19 pandemic.
But it did not have a material impact on the quarter's results.
We estimate a favorable sales impact of around 10 basis points of growth.
Adjusted operating income declined 12% on a constant currency basis.
Mainly due to a lower pharmacy gross margin in the U.S. and the year on year bonus and Bucks.
Partly offset by the benefit of the transformational cost management program.
On solid growth from our U.S. retail business.
Adjusted EPS was $1.52 cents.
Constant currency decline of 7.3%.
Our share repurchase program contributed 2.6 percentage points of growth.
This was partly offset by a 0.5 percentage point headwind from tax rate.
GAAP EPS declined 14% to $1.70 cents.
Including the negative impact from our share of Amerisourcebergen impairment affirmative them.
Let's turn now to the financial highlights for the first half of the here.
Sales increased 2.7%, including the currency headwind of 0.5% on.
On a constant currency basis sales were up 3.2%.
Mainly due to U.S. pharmacy sales and strong performance from pharmaceutical wholesale.
Bear in mind that the constant currency growth rate includes a headwind from store optimization of 0.4%.
On a constant currency basis, adjusted EPS declined 6.5%.
Our share repurchase program contributed 3.2 percentage points of growth on a lower tax rate contributed 2.4 percentage points as we benefited from discrete tax items.
Now, let's look at the performance of our divisions, starting with retail pharmacy USA.
Hi, This is a leap year or second quarter results have benefited from one extra day of sales.
We have adjusted all come sales income prescription numbers to include only the first 28 days of February.
Sales increased 3.8% in the quarter would improve comp growth in boat pharmacy on retail.
The result was held back by a 70 basis point impact from our store optimization programs.
Total comp sales increased 2.7%.
On a sequential improvement of 110 basis points versus the first quarter.
Adjusted gross profit declined 3.7%.
Entirely due to a lower pharmacy margin and only partly offset by higher retail gross profit as a result of improved margin delivery across all key categories.
Absolutely adjusted EPS, DNA spend was 0.8% lower than prior year.
As the transformational cost management program savings more than offset the year on year boneless impact of 2% higher investments in I.T. and digital of 0.4% and general inflationary pressures.
I just the rest DNA was 16.9% of sales and improvement of 0.8 percentage points versus prior year.
Adjusted operating income declined 12.9%.
This was negatively impacted by the year on your bonus and but.
The true up of a reimbursement contract.
Incremental investments in digital and development.
In total.
Just had an impact of around 17 percentage points of operating income growth.
Now, let's look in more detail at our pharmacy business.
Total pharmacy sales increased 5.3% versus prior year, reflecting higher brand inflation comps script growth and strong growth in central specialty.
Partly offset by the store optimization program.
Central specialty sales continued to grow nicely up 17.7% versus prior year.
Comfort to see sales were up 3.7% comp scripts grew 4.9%.
Compared to 2.8% growth in the first quarter.
Aided by improved Medicare part D performance on a favorable cough cold flu season.
Market share for the quarter was 21%.
Down 50 basis points versus last year.
Including the negative impact of our store optimization programs.
Adjusted gross profit decreased year on year as the impact of script growth and procurement savings was more than offset by reimbursement pressure.
As a reminder, the second quarter included the contract true up I mentioned earlier with an impact of around 60 basis points on gross margin.
Turning next to our U.S. retail business.
Retail sales decline, 0.3% in the quarter entirely due to store optimization.
We delivered sequential improvement in comp retail sales in the quarter.
Comp sales increase 0.6% and excluding tobacco in E cigarettes comps were up 1.9%.
The cough cold flu season was favorable this year and contributed around 80 basis points to the growth rate.
While increased demand as a result of the covert 19 pandemic was not material to W.B. A's overall result.
It did contribute around 40 basis points of growth for the U.S. retail business.
The sequential improvement in sales growth was led by our flagship health and wellness business, which grew 6.7%.
And by personal care, which was up 2.3%.
Beauty was flat in the corker, but was up to 0.9% in the first half.
Adjusted gross profit increased low single digit.
Coming from solid comp growth and higher gross margin across all key categories.
Turning next to retail pharmacy international and I'll talk to constant currency numbers.
Sales declined 1.7% due to challenging market conditions in the UK civil unrest in Chile, and a decline in Chinese tourists to Thailand.
Boots, UK pharmacy comps sales increased 1.8% in the quarter with favorable NHS reimbursement phasing, partially offset by lower scrip phone.
Boots, UK comp retail sales declined 4.6% in a declining UK market.
Overall, we held market share in our categories.
Led by continued strong share gains in premium beauty.
Adjusted operating income was down 24%, mostly due to lower retail sales volume and margin in the UK.
With over seven percentage points due to the year on year vileness impact on higher technology investments.
Turning now to the pharmaceutical wholesale division, which I'll also discuss in constant currency.
The pharmaceutical wholesale division delivered another strong quarter with sales up 8% led by emerging markets and the UK.
Adjusted operating income increased 5.2%, reflecting strong revenue growth on a higher contribution from amerisourcebergen.
Partially offset by lower gross margin.
Turning next to cash flow.
Free cash flow was strong with $1.8 billion deliver than the first half of the your top unimpressive $1.4 billion on the same period last year.
This reflects strong working capital performance of $1.8 billion.
On a prior year headwind related to cash tax payments of $290 million.
We did see some favorable timing in the quarter and we expect this would reverse during the course of the third quarter.
Lastly.
We have increased our purchases in key categories as we realigned with recent demand the spikes.
This may lead to some volatility in inventory levels during the course of the third quarter.
Let's turn now to our transformational cost management program.
We are well on track to deliver in excess of $1.8 billion in annual cost savings by fiscal 2022.
On smart spend we have moved quickly.
We are conducting significant contract renewals in God's not for resale.
With further savings potential as we implement new operating models with these vendors.
Interestingly this can be a win win also for the vendors.
We are bundling our scale, reducing the number of suppliers and offering larger volume of business in return for lower costs and the outcome based contracts that drive long term business value.
On Smart organization, we simplified the field organization structure in boots UK.
Under a conducting end to end operating model reviews across all of our businesses.
We have closed 116 of the 200 Walgreens stores targeted for closure on 40 of the 200 boots UK stores.
We are moving swiftly ahead on shared services.
We have already started the implementation of a new I T operating model and we are transitioning activities to Tata consulting services.
As I've said before the savings generated through our transformational and cost management program will allow us to fund the investments needed to create new and innovative business models save to invest to grow.
However, it is important to highlight that covert 19 is having a short term impact on a number of enterprise initiatives.
We have temporarily refocus select resources from the transformational cost management program to work on mitigating the covert 19 impacts that are facing us right now.
We're selectively deferring investments.
One example, here is that we are delaying or I'd say p. rollout in the U.S.
As it would not be prudent to roll out new systems in the stores when our team members need to be 100% focused on delivering world class customer service in a challenging operating environment.
Nevertheless, we remain confident that we will deliver our exceed our long term cost saving goals.
Now I'll hand, it over to Alec.
Thank you James.
Personal update you on some of the initiatives we've undertaken in the quarter, both in the U.S. and the UK.
Well, then going to discuss the impact of Corbett 19, starting with U.S. retail the grocer trials were undertaking with Kroger are performing well.
As a reminder, with trial in different approaches and our 50 pilot stores from the still could express offer with ambient and fresh produce.
And I'm being only range.
Also Kroger continues to trial, Walgreens health and beauty ranges and 17 of the in Knoxville source.
I joined by angry if it's up and running.
We will update you fund that on the partnership as things progress.
Leaving that there's new partnerships on the investments we have made and data capabilities. We are nice talking to realize the benefits of a new personalized marketing approach.
We generated a proxy sales lift up 1% in the quarter.
Also in the quarter or flexion number seven Brian performed well and upper and 7% supported by a nationwide TV campaign, and U.S. pharmacy, the Walgreens Express Apis, which allows patients to order scripts online pension funds and Clayton stored at a dedicated checkout line is now being used by over a million.
In patients turning next to primary care.
Oh five village and the locations are now open.
We can I just health care as expected we opened four of the 14 Cogs resource centers.
With partners in primary care, we've opened two locations in the quarter taken a two to five.
We're pleased with the progress of all three partnerships to date.
A lot comp is now operating in 109 more insights across 12 stays as planned turning to additional initiatives, which continued to gather momentum.
<unk> Reefal program, that's over 3 million members signed up an increase of 4% since the first quarter.
We're not including save a trip refills in our calculation of Walgreens digitally initially sales. The combined total was up around 7% passes the same quarter last year.
Our fine care platform that is 32 health care providers spanning 14 services and visits increased to 2 million in the quarter up 40% since the first quarter.
Also in the quarter, we participated in a funding round of a health care engagement platform be well, which complements fine care.
Or will he is out because they've been very Moody's 62 million times up 22% you don't you in the quarter and up 12% year to date.
And finally with Microsoft we are making strong progress, including moving up locations to the quite.
In particular, we moved our SAP Hana as for application to the cloud, which was a significant achievement.
Next pitch UK, our actions this quarter, how being focused on premium beauty and acceleration of digital operations, particularly in health care.
We've launched an innovative online pharmacy solution with Libby I'm just dot com.
Customers will be able to big video consultations with general practitioners and follow up sessions with pits promises initially in store and any future online we continue to gain market share in premium beauty and the corridor and we introduced name you beauty brands, including Huda beauty, taking a total number of new Brian.
Just to 48.
We have successfully Digitalized disadvantage card, which now has 1.2 million users I.
We've also accelerated usage of the boots up with downloads, increasing 76% in the quarter, especially last year.
The up now has 3 million active users, which we believe makes the largest pharmacy health and beauty up in the UK.
Boost dot com continue to see strong growth with sales up 23%.
In the quarter.
Of course, we see huge changes in the UK and the past 10 days or so.
Result of corporate 19, so no I would like to provide some context.
Before I start I want to express my heartfelt. Thanks to all my colleagues have done so much to work together and collaborate with others to take care of the communities. We serve and this extraordinary movement. It makes me very pro to walk for this pharmacy led health care company.
As a healthcare company, we are on the front line of the pandemic.
And our number one priority, it's a safety and well being offer customers patients I'm colleagues.
We are well positioned across in many markets. We operate in to provide health care in the community through our stores on their distribution networks.
Colleagues are working tirelessly provide medicine surfaces and advice.
To ensure we meet the needs of our customers on patients.
We are keeping our stores on pharmacies open.
We're working to keep essential products in stores provide additional materials to help ensure the clean and operate two state and federal covert 19 guidance.
And we've expanded the use of a try three locations.
We're also focusing on home delivery, we've wave delivery fees for eligible prescriptions and both the U.S. and the UK.
We are offering free delivery on Walgreens Dot com.
I'm going choosy, we announced expansion of our partnership with Postmates with on demand to live in available in over 7000 pharmacies nationwide.
We're also expanding the availability of our digital services to connect with our customers.
Fine care.
24, seven pharmacy chat.
We've seen strong growth in many essential categories in the month of March.
Including online pharmacy on Walgreens Dot com.
As we focus on home deliveries of prescription items health care and daily living products.
And more recently as a consequence of attempt restrictions on movement, we have noticed last consumer spending.
In this country items.
She is beauty photographic and seasonal.
On the drop off in food traffic.
We're also working closely with governments and business partners.
And in coordination with the U.S. government health officials, we are working to provide dry through testing sites.
And then the UK boots is walking with the NHS and department of Health to fight Cobot 19 testing for key walk us onto device supports a number of other ways. During this crisis.
And with Walgreens on bids are providing customers with official government advice.
We dedicated emails or web sites and in store information.
We're also working with health plans physicians and governments thyroid access to medications.
Do you know you asked this includes 90 day refills and Alley refill authorizations.
In short we're doing all we can too is just the stress on our customers.
He want to thank all our partners or be very helpful and this endeavor.
As you know we have a very broad footprint, reaching communities throughout our nationwide pharmacy network on through an online services.
In the U.S., we have a convenient access to critical essential items.
We have a wide range of over the kinds of health and wellness products on a consistent supply of pharmaceutics.
In summary, we are fully committed to giving our communities as much supporters, we can indeed very uncertain times.
As I said upfront or people in the front line I do fantastic and critical walk.
I mean must also support their health and wellness.
To do this we're taking a number of actions, including providing expanded tempe benefits for 17 members.
Protective measures and well being resources.
I would like to finish where I started.
By giving my heartfelt thanks to everyone who's providing care securities we support a this critical moment back to James.
Now I would like to provide some context around the potential impacts from the covert nine thing pandemic.
Clearly.
The full impact of covert 19 won't be known for months. However, what's important right. Now is that we are proactively managing the immediate challenges I'm, playing an important role for our customers.
However, the situation is quite fluid.
And we expect considerable volatility as the situation evolves over the coming weeks and months.
I present, we're seeing a number of puts and takes.
In the U.S., we saw very strong sales in the first three weeks of March.
As customers a celebrated their purchases across multiple categories.
However, we are now seen declining sales trends, especially in quarantined areas.
One of its difficult to predict future sales realistically, we expect to see future de stocking by our customers and short term sales may be negatively impacted by lower foot traffic.
This is particularly evident in discretionary categories, such as beauty and photo as customers redirect spending to everyday essential categories.
Let me talk you through what we saw in March.
Why do we have not yet closed the books for March we do have good visibility to our sales performance.
In Walgreens comp retail sales grew by around 14% in the month.
Led by 32% growth in health and wellness and 28% growth from our grocery category.
Partially offset by declines in discretionary categories, such as beauty and seasonal.
But.
There were two very distinct periods in March.
We delivered comp sales growth of 26% in the first 21 days of the month.
However, post March 20, Onest become sales trends turn negative.
With the last week of the month running at a mid teens rate of decline.
Obviously, if this trend continues for an extended period. They were quickly offset the sales uplift scene in the first 21 days of March.
Prescriptions saw similar trends, though less pronounced.
With declines posts March 21st reflecting the pull forward of scripts into the earlier part of the month and lower foot traffic.
In the UK. We also saw strong initial sales trends.
But the UK is now effectively on lockdown on.
And this has led to a significant decline and high Street Footfall again, we're seeing a similar trend and discretionary items, where the significant decline than our beauty business.
And we have deferred key growth initiatives for the moment weve halted new product launches.
And we postponed the plan rollout of our beauty holes to new locations.
In March.
Our UK sales declined by around 8%.
Mid single digit growth in pharmacy did not offset a mid teens decline in retail sales.
But it is the exit trends that are concerning.
Retail sales declined by 65% over the last 10 days.
As high street foot traffic reduced significantly and consumers divert that spending away from discretionary products.
That being said, we're confident that this is a temporary situation.
And we would expect to see some stabilization of sales trends over time.
Given that our pharmacies are designated essential services and are therefore, among the few retail locations remaining open.
Additionally in line with current advice, we have closed our opticians and hearing care businesses in the UK.
Except for 22, optician Hobbs, providing emergency treatments.
Once the restrictions are removed we were rapidly reopened our 600 stores and expect a reasonably quick recovery.
With regard to better businesses, we have seen a spike in demand across our main pharmaceutical wholesale markets throughout the month of March.
Our hospitals supply business contributed to an increase in sales in the high teens.
On the back of additional investments.
To support customer demand.
Generally we saw increased demand in March across other retail markets with the exception of Thailand.
Which has been heavily impacted by a significant decline and tourism from the key Chinese market.
On the flip side, our China retail JV is performing very well and we were seen significant revenue upside.
Turning to costs.
We estimate an overall cost impact of around $65 million in March.
Mostly relating to employee benefits and store operations on supply chain costs.
A number of these costs may not repeat in future months.
Future cost impacts are highly dependent on the duration of the pandemic across multiple markets.
Available assistance from governments, and our ability to mitigate costs.
You are also well aware of the stock availability restrictions in a number of categories.
And we have significantly increased our purchases across a number of key categories <unk>.
To provide availability of critical products for customers.
Obviously.
We may see some impact on inventory levels as supply and demand realign over the coming months.
Finally, and importantly, managing through covert 19 requires a huge investment of time and resources across the entire enterprise.
Faced with the current situation, we're very focused on mitigating covert 19, and sometimes we are putting resources and management time away from other value added activities.
So it's clear that are a lot of moving pieces.
After seeing buoyant sales trends in the first three weeks of March we have begun to see some negative trends as lockdowns are put in place. However, we do expect the covert 19 impact on March month to be broadly neutral.
With revenue upside in the U.S. offsetting higher operational costs and significant sales declines in the UK.
As we look forward given the number of moving parts, we cannot provide reliable estimates as to the potential impact of covert 19 for the fiscal year.
It is highly dependent upon the severity and duration of the pandemic across multiple markets.
Finally, I would highlight that this should be a temporary situation and whats important is that we are proactively managing the impacts while continuing to make progress against our strategic priorities.
Our fundamentals are sound and we are convinced we will exit this global crisis and a strong position.
Let me now pass it back to Stefano for his closing comments.
Thank you Jason.
So and they Sandy my opening comments the whole thing we have reported today it seems like it yet, but I would it take.
I think historically, what the net impact of the Cogs and <unk> spending will be well now go phone for the Oh.
Yeah, I had come addicts and James it out some of the World Cup teams that we get costs on a combined.
But at current plain and simple they can easily so.
The situation we added.
And as I think they all kinds of community pharmacy, playing it they are they asking but oh langholm.
In the Wildcat had either even take it.
Oh, Okay for me.
He decided in Wow, it's all getting a healthy community pharmacy angle you said five.
Oh, Amy effective educated decisions.
He is why we are also so we get to the sale and quality of the messaging.
We must remember at the time they tend to say you know not fit that annually over the coming weeks and months AK and eventually will live if there are more gold medal delayed impact.
In fact that they built out they ought to get to provide the medication and can follow this people need managed and maintain the head.
Keeping don't have thought and lifestyle. He's got the phones in both at the demand by the immediately after it only local convenience the data offering not hello.
He something bolt on to lead in this meeting.
Good day.
In both my thought they supply chain cannot be overstated.
Well, one policies and stool and not okay.
Without the Angela and reliable suppliers and maybe the anyway.
He said foundation of our lease that and I'll take place and many other bdcs. He says they they don't fit it will be speed, though.
Maintaining these sanctioned supply into the day.
Yes, and the key to our global responses to the current guidance that.
It seems like it said.
Oh thousand so not only facing a significant increase in demand communication.
Yes, as kid and preventative or protect it up.
That's one thing I think getting paid in recent seeking that by the information from our team.
And yes. It himself. He is the only local led to ensure that goes down a fair isolating. The in addition, a goal 18, because you get into outside in the southeast and that it didn't have you seen lately.
We are working closely with gathering neglect, the pain and locally nationally and seasoned.
We should we only know what we can do you know the savings and he does that.
It's both in the five of the games to the whenever possible.
And then not less costly yeah, let me jump at eight instead is station the providing valuable things yes. Thank you all.
And he said, we would expect it and anywhere weekend.
I'll, let me say you know that I think the challenges of the Guy.
Thanks, Jason do I need the only way fadiman, you'll get a global.
But let me add even better than paid to play and announced the whole.
In the provision and kept looking for award.
We haven't had food that he thought sometime and believe that the combination of Islam block I'd say, a supported by an efficient they rely on global supply chain, we stayed up to half Logisticare and we maybe I didn't I think you're getting thing and inside.
Moving to only need utilize organization and the only omni channel customer interaction in the future for fab.
This is why.
We see is so important I think they'll either on our key strategic pay 'em brings together the enemy of infusion Jeff filing a conservative.
And yeah for the opportunities these days.
I am calling it either way for ward for helping us.
Next we have land position to come to these Collins digital rights.
And the medicine and even longer these names if yesterday.
For me the needing the wife award for our business and that we are well positioned to kind of police currently as well.
And the Medicaid and eat into stronger business as they come yesterday.
At the time or wait on certain people all the while locally and globally for our customers in London and dialing back though we are in good position at least they need yet challenges, we face and getting back into future.
He summarization Enac horizon. So anything you can ask of communities and the keep back of the national Hesitating to factor in appealing they said public need and concern might they both pass over the whole thing.
He need even if they get confident you get to each other for an hour evening.
Thank you bye now.
Now moving page in Wisconsin.
At this time, if he would like to ask a question. Please press star one on your telephone keypad.
Again that is star one on your telephone keypad. Your first question comes from George Hill from Deutsche Bank. Your line is open.
Good morning team and thank you very much for taking the questions and I'm glad to hear that everybody's kind of sequestering themselves well to stay safe.
And I appreciate the color all the color on March I guess, Alex in James I'd ask you talked about the acceleration in scripts.
Sharply in the first part of the months in March I kind of falling down in the last week I guess is there a way to normalize what the scrip trend looks like from March and then if we look at the last week has the growth just slowed or have scripts actually going negative and I have a very very follow up.
Hi, Hi, Hi, Jordan Sadler here.
It's really hard I mean and June appeared remarks, James is getting a lot of that you can detailed.
Well, we know when we don't have a lot to add to that won't be where we think is happening. This people have to forward the scripts.
On got bigger Quantus, the scripts and just as a as the situation began to develop particularly in the middle two weeks of March.
Therefore, we think there's been some stockpiling if you like of prescriptions. It really is too early to tell if there's any fundamental change to trends. We don't think there hasn't been but as we said and prepare my remarks, we really don't know yet and of course, we're keeping our very close eye on the situation. There I'd say, it's a little tricky, but up we get we estimate on that.
As for Trust the places, it's probably a mid single digits pretty similar to the second quarter.
HM a fairly significant uplift in the first 20 days, just a month and falling off it does fall off into negative close. So that's actually a direct result of lower football and people actually respecting with instructions to stay at home I think we've got more stability as we look forward into the future demands.
That's helpful. And then maybe a brief follow up is you guys have the benefit of doing business in some of the countries that are further up the the infection curves as it relates to covert 19, I guess is there any way to extrapolate what has happened in countries like Italy or kind of into the United States and with those implications for the business would they.
I think I think you'll find that money markets are quite different.
And I'm not sure you should use them as analogs. So what we saw in China, which was the market that was first cases, it's a business that was growing high teens afore it ramped up in at the peak of the crisis to be up in the 50% growth.
Right now as its back to stability, it's actually still growing very strongly actually above high teens.
I think what yes, we've seen in China's remarkable it is consistent on increased demand for pharmacy products.
We don't have a big presence and we told in the in the initially so we can see us or directly but I don't think China should be taken as an analog for or for the U.S.
Let me, let me pass it over to Stefano because he is he has a probably as a point of view on this.
Yes, well ahead of told them just to Shaylee Healy, how you say they may day, and Oh I can tell you then or they love down there and then quite a significant deals that come to pharmacy. So initially the pharmacy, where comedian JB when I talk to send it didnt.
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But.
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Yes.
Okay. Thank you.
[music].
Your next question comes from Michael Cherny, Some buffer Securities. Your line is open.
Hi, good morning, Thanks for taking the question and Yeah Echo George's comments hope everyone is staying safe during this.
I wanted to dive a little bit into a the cost side because of.
Our dynamic you had in place on you mentioned all the investments that you're making to help people within the stores to promote timeliness et cetera, you have to same time in the event that these revenue trends were to be slightly longer than the incredibly short term dynamic there could be some potential or desire and need for flow.
During the cost side, given the sheer magnitude of uncertainty you're seeing right now and especially across the U.S.. While these rolling shutdowns and rolling closures. How did you prepare some of that variable cost side across your business to account for a lack of demand you might see in somebody's area, there, especially going through the the newer levels.
Shutdown and is there any.
Is there any level of variability that you do want to pursue alongside also the investments you're making within the cleanliness of the stores in the employee base.
Hi, My colleagues here and thanks for question and I Hope you are also doing well in phase.
I think that's a it's a great question because it goes to the rental that what Richard Ashworth and the team have done nothing fantastically well.
In the U.S. and and 17 in the UK I by having to react to the today I'll give you a couple of examples to bring in a life.
For example, in Las Vegas strip or we have a number of very very strong stores, but you can imagine that strip is now closed and therefore, we've had two as you say my hunch is just a cost base and take care of or people.
And these are very strong stores in our marketplace. Yeah. There are other market square the number of prescriptions being sold number of customers seeking advice have increased there's also our online businesses, which have increased remarkably we gave some thoughts in the prepared remarks, and we've been really adjusting quickly to make sure that we can say.
As customers in different ways, as we said through a postmates relationship.
Through that increasing capacity in or online and we obviously is.
And making sure, though we are able to a comedy more people in the use of the country where people are coming during this period of time.
So we are we're doing both sides of this rapidly we we have a very flexible model on a Richard and team are driving that very strongly there are there other news on me Passante James.
Maybe speak about some of the other areas, which are maybe more fixed costs, where again we are.
Absolutely we can to see what we can do with these fixed costs and expecting support from partners. So just as an example, they we are thinking I think your question is a good ones 65 million, we don't expect to continue into future periods, because a number of things will happen, we'll get more efficient and how we're managing the day today.
Hey operations and the new environment and the second thing is we will be taking cost containment measures. Because you know we have to try and mitigate the impacts on the cost side. So we would guess went on is literally at this stage as we would say the 65 next month would come down to 30 to 40 million dollar range I'm not.
As assuming a full shut down if the shutdown was to continue.
Into June.
We then would actually into me, we would actually project that we could offset all the incremental costs because by that stage. We would have found areas of mitigation. One example here in the UK is you will have noted from our prepared comments that are opticians practices are basically closed and we're quite a big player we have 600.
Stores within stores in the UK and we have furloughed every store and all the employees and the British government basically pays 80% or the cost.
Of the furloughed employees up to $2500 a month. So the actions are being taken are pretty rapid but I think you're right. The the cost can't be allowed to increase into perpetuity.
So we will have to find offsets and I hope that answers your question.
Oh, no it's as James and then one very quick additional question just for you or any commentary on the planned a couple appointments share repurchases any thoughts around the dividend just anything there, but might be adjusted or change based on what you're seeing right now.
Yes. Good question I'm you know some.
Some of our competitors have made 'em immediate moves we always a robust discussions about it and here in here, we remain convinced as to the long term capability of the company to come out of the stronger we're very confident enough cash flows and you saw the quarter. We had like Q1, we did one point.
<unk> billion in the first half on where were 1.4 billion than what we did this time last year. So we're we're probably right now over delivering against the working capital programs. We set out. We've said we were going to take out about a billion of working capital I'm. The year to date benefit was 1.8 some of the others phasing or we're feeling very good.
What about the cash position.
We Didnt note. However, you know they commercial paper markets dried up pretty quickly and we put our backstops in place as quickly as that and we're actively in the market talk at the banking partners and away from just yesterday, we secured a bilateral funding of about 750 million. So we are putting in place.
Well, we internally called Black Swan funding for events, we actually don't think will happen over quite conservative on that point of view.
Given the context, we were actually very happy with our capital structure, we're very happy with our capital allocation policy and we've decided for the moment to continue with the share repurchase program, which you know your recall last year, we repurchased 3.8 billion. This year, it's 1.7, which is already 50%.
Below what we were doing this time last year, so we're already lower.
And on dividends you know, there's a company that's increased dividends a since Oh I think has paid a dividend since 1934 and our dividend policy is extremely clear if which is too.
Increase dividends every year and it's a simplistic policy, but we have no intention a change in our policy in the short term and this is all on the basis of a we believe in the strengthened a tremendous work us tremendous cash flow generation capability of the company.
Excellent. Thank you.
Your next question comes from Ricky Goldwasser from Morgan Stanley. Your line is open.
Yeah, Hi, good morning, a nice crushing circuit started testing you mentioned that you're doing some testing some drives to is the area. They screening is becoming an increasing area. So Chris.
When do you think you'll be able to gapping running what tends to follow him and what type of fund just and you can accommodate.
Thanks, Ricky is only here in the U.S.. So we have a the pilots in place and the Chicago land area. It's doing about 150 tests. They I'm, we're very much a under the direction of the governments and we're working very closely with the government I'm already really to see exactly what their plans are.
To accelerate the testing on the screening as you said.
So really we don't have a alone more information at this stage things are.
Under review constantly every single day senior people are having conversations you know with officials from the government both state and federal level.
And a you know we will play a part we will do all week time to make sure that we are there.
To test people, if it's appropriate to do it in movies premises using Walgreens personnel.
Another point here is that a of course.
Our people have stepped forward and volunteered to decide which again is a great example of the commitment behalf as a company to America.
I think that would you want to make some comments and testing as well I know you've also been involved.
Sure Yes.
Hey.
Did you probably know there are many people that now while working on a new casting vaccine and Ah I believed in TV shows to them or we will have a new opportunities and you pay stood at two would be much easier.
In a much U.S.P.S. and ER NANIUM eastern is probably the some of these days.
We'd be able now to be sales from the eastern anything so yeah, you can't make Bonnie there so we need to be able to really can't.
A massive scale in India, India, we didn't them these kind of days to of course they.
Delineation of Stansky deeper levels will be Mississippi, Louisiana tea leaves no you'll see what keeps happening even in town sees that.
And.
Yeah, Hey in it in D., So an agency solves a one mine so molds and you've seen in the Netherlands Pasting Gulf Coast. He said.
Gee, United Kingdoms high yield any new assets and but he's not to ski massive scale D.. We don't thank you and stuff I don't believe date that we'd be able to today is there a big part of the population.
Okay, and just one quick follow up you give a lot of detail on what you're seeing and the Frontend game and it's a kind you're seeing in beauty in groceries to can you just.
I would remind us kind of like they'll get a sense just a margin profile off discretionary products that you're seeing it declined versus the backend and pharmacy script.
Sorry, I'm, maybe I'll ask I like the way in one thing I do want to emphasize is that the performance were seen is actually very consistent or are they going to say slightly better in some categories than the rest of the retailers, who remain open and I don't want us to be lost some people. So we were up 21% 26.
Percentage in the first 21 days in the U.S. and frankly was that there was that feeling of euphoria across the business. The key driver in here is our health and wellness business, which is our flagship and that's up in the 30% range and that you're today period actually on the phone month period.
So honey I think of good way to think about this is any margin we lose on the beauty business and I think beauty in the month of March was down about 9% and then the health and wellness business was up 30 plus percent both of those businesses have a similar gross margin so they're they're equally profitable.
And on the food grocery category, which was up 28% in the month, so quite a large increase.
That has a margin of about I would call it seven to eight points lower than either beauty or has the wireless. So I think they though there are a category shifts the margins will be slightly impacted but not the they extend some retailers pointed out we with because our health and wellness businesses, the probably the most profitable business.
And that's growing the fastest in the in the current environment.
And then the fall off obviously on the second half second last 10 days when we attribute totally to the shutdowns that occurred it's actually good to see the people stay at home. That's a positive thing. We believe there will be a gradual will come back to this even when there is a slow down. So if we're looking into April we don't think the.
We don't think the last 10 days are the best reflection of what will happen in April we think April will be probably down but there will be recovery is a stocks work their way out of the system and people start.
Going back to it or some of the old purchasing behaviors. So we're actually quite.
Pleased with the performance compared to the market you know we won't be seen the same kind of margin issue as some other players.
Yeah, My memory, I mean, just covered it well I Nicky I think that this is temporary deal with a very clear moment in time, when the locked down and hop into okay, maybe happened.
On different days or something different weeks for example, Florida more or less coast fuel walked out anything said today.
But this we think it's a temporary situation and we believe that the evidence is very clear that discretionary spending will come back, particularly in areas like beauty, which are really well known.
For be pleased where people spend when things are tougher.
So again, you know I don't have anything I'd see detail changes given but I think I was just what's the point this is temporary.
Maybe just turning a bit too you can't pass okay. The UK as you know was a much bigger beauty business on the beauty business had been doing very well in recent times in the UK and also as much more of a high Street business.
On a situation UK was almost a complete locked on.
Except for grocery in pharmacy on health care.
When it kicked off so therefore, we are seeing more impact in the UK as James is commented on his prepared remarks, but again, we believe our business will come back and when the temporary situation in the UK is also over.
So thank you.
Your next question comes from Lisa Gill from JP Morgan Your line is open.
Good morning, and thanks for taking my question, that's really what at better understand T. thing. So I agree that would be temporary obviously nobody knows the exact timeline, but as we come out of covered 19, what do you think some of their recent trends that you're seeing whether its DHL demand for home delivery that will stick going forward.
And what does that potentially mean for your business would be my first question and then secondly, there is it's probably better marketing that.
Excellent called the 19, we couldn't move more towards a recessionary environment here in the U.S. what are some of the lessons you've learned from back in that 2008 2009 timeframe to really preparing your business and you know what are what are your thoughts if we are to move towards that recessionary environment.
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We are illegal that outcome a we saw this down on the worked we were doing investor We'll see you pulled in the same at least since we didnt.
Oh, we didnt tied to reduce cost too much and because we wanted to be able or do I didn't even though you can be d. So when.
The market or a change.
And then a deed to to be de successfully why not and many other companies aware that heavy problem not a we need yes, yeah. The TV when serves a wide decent.
So we have learned the east Nick you don't have to panic.
You asked to acceptance and everything that 10 bone.
Definitely costs and a that keep.
Andy Oh, good mediation or a walking dead.
On a home on the can you give them independently.
The call on a deal so we go.
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A how you see.
Families told them and beat boiler people know when you go back to their hobby said quite soon she so we will then ER and now you came in Nottingham, It's still a D.
And they want to be BDC and care NATO and Amelie D. So we now are we have changed today, having some deep on Oh, we BD second there.
In the inflow tools are also many industry leading.
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Aftermath.
And then a decent a de strategy a week lead pools, less and convenient ice strategy, even more easily beat a nice that digital engagement the each day in buying them into the change and substantially de strategy would be even more important.
I Wonder I wonder if like I just had something is.
Yes, I think it's important to point out that we're operating from a relative position of strength you know, we're coming out of a quarter, where we actually did what we said we want to do and in terms of getting or sequential comps in the U.S. back where they need to be.
We beat the P.S., which was coming out of the U.S. retail business. Some good cost control or cash flow performances is excellent. So we're sitting here looking out there. Some we've the crisis in front of US we do believe and I think your question is a good what we do need to turn this into an advantage.
This is proven what we've known that having convenient 9000 convenient locations across the U.S. as a strength. It's also what we've seen as we saw in in the quarter that we celebrated a mass personalization in the U.S. and got a 100 basis point uplift I think we will find ourselves dramatically.
Celebrating our digital journey over the next six to 12 months and what we found as it's amazing what technology stuff, we could get done in two weeks in a crisis when we needed to help the average consumer and how long we normally take together done. So I think there needs to be it will generate enhanced agility across the entire industry.
I think it will speed up our digital agenda, and I think I think you're right. There is a transformation comment I think the other part you kinda alluding to it I think the recession entirely depends on the duration of the lot, though and then the secondly, the size of the stimulus in the U.S. I'm not underestimating the ability of the you.
Yes economy true stimulus to really Gige regenerate economic growth very strongly and I think the one thing we've seen out of past recessions.
It's not it it's not a worldwide comment is that the most resilient consumer in the world is in the U.S. market. So I'm not that's not whopper hold hoping hoping for but I think that you will find a fairly rapid rebound and I think the general size of the stimulus in the U.S. is massive and it's the right thing to be doing to ensure that.
The economy's stays on the path, so I'm I'm, not saying I'm not concerned whatever saying is right moves are being taken that being said I think there will be a re raising here and you know you look at that at the market has changed substantially and you know we're on the phone rounding up backup that facilities were emphasizing that our relatives of credit rating.
As far stronger than some other sectors right now and then there will be a re raising people will start examining the assets in the market and so we'll hold on a second stable cash flow. So this is why we do feel that we will come out stronger in terms of rating of the company from debt capacity.
Below the of the company to Wetterich storm like this and you're right. We have to turn it into though to a set of rate or long term digital agenda on against her for strategic priorities. So I I totally agree with your point.
Great. Thank you so much.
And your last question comes from Steven Valiquette from Barclays. Your line is open.
Okay, great. Thanks, Good morning, everyone. Thanks for taking the question.
So within the investment.
The discussion around the potential.
Script.
Quite sure right to be more topical about four to five weeks versus what it is today.
But nevertheless payable.
Yes, I knew.
[noise] address the crusher operations globally.
Are there any issues related to export bans out of certain a pack country that particular or is that I really an issue for you.
Sorry, B. Riley.
Youre asking about a quarter all right.
Like the guarantee the supply chain is that right.
Yes, correct, yeah, just a risk of any sort of drug supply shortages or this is more topical a maybe a month ago versus today, but yeah. That's that's really the question sorry, there's any sort of back or background I hear an echo as well.
Yeah, I know that by adding take that.
Yes, sure Hi, Steve I think you also I prescription growth in the first part of your question. So I'll start there.
He was with as we said already Q2 was I was with good from our point of view, we were able to.
We are able to move or growth forward to an all claims to James describe to just under 5% growth and compatible scripts.
Also I think we had a reasonable a reasonably good med D season on January one.
Which was important to is given last about sort of the marketplace. So it going into the koby crisis, we felt like growth was a or improving in the trends when improving.
In terms of supply and tens of a new stuff Oh, sorry, you asked a question we managed to see if it's a beautiful express Pos.
And we're working on many other digital initiatives. So Stefano a sad to allow customers to use are doing lead up to manage their prescriptions.
And really trying to spot in ways, so there's more to come including of course.
Oh, the Liberty matron accelerating as well.
And Tom So in terms of the UK similar patterns as well with growth in terms of the use of online pharmacy again that was in the premier from Bronx in terms of supply chain.
We we feel good at the moment in the next three to six months that we got a epi in terms of the components of genetics and the right place on some prepared product.
Also with a a more global wholesale supply chain.
Alliance healthcare again, good visibility and great partnerships with pharma companies and again there are they all caught up like Passat demo and some other products, but the majority of products Lou to being good supply at this moment in time.
Yeah.
If you can hear me at the drug manufacturing level have you witnessed any notable changes in pricing strategies over the past month or two related to the supply and demand gyrations from Cowen 19, or would you say everything has been pretty consistent and the pricing front at the manufacturer level.
Yeah. So.
No no really they manufacture our gaming to me when I say the momentum.
They are keeping that are there if he said.
Stadiums.
We we see on some of it.
Now turning to.
You will see any possible in an effort to supply the market a you know even in Europe for instance, we have any big deals.
You know city market. So he has hit the market so Matt.
They DCB itself and they today, but they don't need manufacturer either.
You said two daily there to their oil CLS into the Thomas each aspect, Alex and the Easter.
We can that we can say that the deals Sina signs are asking das said to stock a you know there could be 82.
She satisfying satisfying to.
Despite the market.
So I just said I have stayed in the small and medium payment he any problems, although most of all sizes must see Jonas.
Molecules Ah I sent them or at least on seven assignments BCG cat.
Target. So I'd say shows the just because maybe they did demand is being Uh huh anyway. They want the so strong going to date or there is no Debbie do manufacturer.
He comes to Pappy manufacturing.
Oh I see it gets to a.
To satisfy demand going back to be size, a just a few cases and they're not a really impacting us they are older and older less supply and demand.
Okay. Thank you Stephanie.
Actually Oh, we have particle today.
Thank you for a lot because I'd say to everyone. I know, we didn't get your questions and wherever they are all team will be available to take cold because we are working for them.
We do have to schedule cold Robin just frame and I've been coming in but if you want to give us a goal will be happy there could go cold that many people, we got bought off over the coming back.
Very much in data around pricing and we'll see you next quarter.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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