Q2 2022 Walgreens Boots Alliance Inc Earnings Call
Good morning, My name is Christian will be your conference operator today.
At this time I'd like to welcome everyone to the Walgreens Boots Alliance second quarter 2022 earnings Conference call.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
If you'd like to ask a question. During this time simply press Star then the number one on your telephone keypad.
To withdraw your question Press Star one again.
Thank you Tiffany Canaigre, Vice President Global Investor Relations you may begin.
Good morning, Thank you for joining us for the Walgreens Boots Alliance earnings call for the second quarter of fiscal year, 2022, and Tiffany kinetic Vice President of Global Investor Relations. Joining me on today's call are Rob Berg, Our Chief Executive Officer, James <unk>, Our Chief Financial Officer, and John Stanley.
President of Walgreens.
As always during the conference call, we anticipate making projections and forward looking statements based on our current expectations are.
Our actual results could differ materially due to a number of factors, including those listed on slide two and those outlined in our latest forms 10-K, and 10-Q filed with the Securities and Exchange Commission.
We undertake no obligation to publicly update any forward looking statement. After this presentation, whether as a result of new information future events changes in assumptions or otherwise you.
You can find our press release and the slides referenced on this call in the investors section of the Walgreens Boots Alliance website, the slides and the press release also contain further information about non-GAAP financial measures that we will discuss today. During this call I will now turn the call over to Rob.
Thanks, Tiffany and good morning, everyone Walgreens Boots Alliance once again delivered strong results in the second quarter sales.
Sales increased three 8% in constant currency or high single digits on a core basis, excluding the negative impact of alliance Rx Walgreens and the positive M&A activity and Walgreens health.
Adjusted EPS grew 26, 5%.
Our good performance reflects execution across each of our business segments.
Our U S retail sales comp of 14, 7% was the highest in over 20 years above even last quarter's record and we are seeing significant recovery in our international markets at.
At the same time, we are building our next growth engine, Walgreens health, which is on pace toward its long term target.
And of course, we continue to serve communities with Covid testing and vaccinations to fight the pandemic.
During the quarter. We also undertook important actions to advance our strategic priorities and to ensure our asset portfolio is strongly aligned with.
We initiated a review of the boots business and this process is progressing well.
Looking ahead, we are maintaining our full year adjusted EPS guidance of low single digit growth, which we raised in January .
Our outlook incorporates healthy fundamentals in our core business as demonstrated with robust sales and earnings growth year to date balanced against ongoing investments in our growth initiatives and our people.
We're delivering against our Investor day commitments as laid out in October we're moving quickly to execute our vision of consumer centric technology enabled health care solutions, which extend well beyond the pharmacy walls as.
As we began to offer our care delivery experience that improves health outcomes and lower costs for patients providers and payers, we are well positioned to drive accelerated sustainable value creation.
I wanted to take a moment to review Walgreens initiatives to provide local communities with access to important resources during the pandemic.
And as we navigate the recovery into an endemic scenario.
In the U S. We administered $11 8 million COVID-19, vaccinations within the quarter and over $62 million to date.
Our pharmacy team members, our health care heroes, the majority of our patients and customers see their pharmacists more than they do any other health care provider and we recognize their tireless dedication and contributions to the pandemic response.
Amazon wave in December and January also drove elevated levels of Covid testing both in store and at home, we completed $6 6 million in store Covid tests during the quarter and over $27 million to date. In addition to our drive through testing at no cost to patients.
We've now launched convenient at home Covid PCR test collection kits with Labcorp at no cost nationwide. This is particularly important for uninsured socially vulnerable and medically underserved populations, who continue to be among those most impacted by COVID-19 .
And as we all start to resume normal activities.
Walgreens will remain a partner to our communities to ensure safer connections and improve mobility.
Our leadership in vaccines and testing is just one way that we are becoming the leading partner and Reimagining local health care and well being for all the.
The second quarter included significant progress towards each of our four strategic priorities.
Let me update you on our latest initiatives and then spend a moment on the drivers of execution at Walgreens health.
First we are transforming and aligning the core business and building a pharmacy of the future that will enable and support our health care strategy.
We saw continued momentum online in the second quarter with digital sales up 38% in the U S or 116% on a two year stack basis.
Same day pickup orders accelerated sequentially to $3 9 million orders.
We have also enrolled over 96 million my Walgreens members up nearly $11 million since the fourth quarter.
We are now focused on activating members through personalized omnichannel messaging and offers.
Additionally, our alternative profit streams are performing well, including our media advertising business, which launched a year ago and is running ahead of expectations.
We continue to see digital media as a significant opportunity for us.
Finally.
We have three automated micro fulfillment centers open and are on pace to have 22 by the end of fiscal 'twenty for driving significant efficiencies and cost savings over time.
We expect these centers to ultimately cover 40% to 50% of prescriptions for pharmacy served.
Removing routine tests and excess inventory from the local sites.
Second.
We're building a platform of technology enabled health care solutions with the consumer in mind.
Is well positioned to fuel our next phase of growth.
Nearly half of our store footprint, we will have a health care touch point between our organic Walgreens health corners, and the co located clinics with village M D.
Village M. D has now opened 100 into co located clinics.
The rollout has accelerated to an average pace of one opening every three days for calendar year 2022.
On the health corners front, we remain on pace to have 100 sites in operation by year end.
Third we are refocusing, our portfolio and optimizing capital allocation.
We continue to apply a rigorous strategic wins to our equity investments and explore all options to unlock value.
Recently, we have gained full ownership of the alliance Rx Walgreens business and our German wholesale JV, creating greater agility ahead.
We have also announced the strategic review of our boots business.
This process is progressing well and we will pursue an outcome that maximizes value.
Finally, we are building a diverse winning team that will underpin our strategic priorities.
Our deep and experienced bench is executing our strong results today and implementing the bold steps necessary to drive growth ahead.
We are making rapid progress towards building, a walgreens health with a clear path to a run rate of more than $4 billion exiting fiscal year 2022, well on our way to our goal of $9 billion to $10 billion in sales by fiscal 2025.
We will improve health outcomes and lower costs for payers and providers by delivering care through owned and partnered assets.
The goal is to support the patient journey across the entire care continuum through Omnichannel solution.
This is why you see these complementary assets spanning primary care through village M D.
She will be pharmacy through shield and post acute care through our pending Kerr centric investment.
The health corners play an important role in addressing care gaps through our health advisors.
Today <unk>.
Blue Shield, California, and cover members can walk in and have access to clinical services like <unk> testing.
Colorectal cancer screening and blood pressure monitoring.
I am, particularly move by stories of these patients receiving emotional support while navigating what can be an overwhelming and in personal experience in U S health care.
Much like our pharmacies.
Our health advisors are becoming trusted neighborhood sources of education recommendations and connections that can help our patients to better manage their wellness.
This is a transformational process to become a leader in value based care as only Walgreens can do through our trusted customer relationships local knowledge and deep data insights.
We will leverage our strong footprint and independent standing to offer uniquely consumer centric solutions for our communities.
We are executing on our vision today.
Our partnership with village MD positions them to be one of the largest and most differentiated primary care providers in the U S.
The collaboration is a significant growth catalyst driving 1000 co located clinics across more than 30 markets by 2027.
Village MD is in 22 markets today, most recently expanding to Boston Jacksonville, and Tucson in February Denver in January in San Antonio in December .
Village <unk> care delivery model is highly scalable with attractive unit economics over time.
Shields continues to rapidly expand its platform representing specialty patients across more than 30 disease states with more than 70 health system partners nationwide.
November and February .
<unk> Inc's, new deals with two significant health systems with geographic reach in the northwest and northeast U S.
Importantly, Wpa in shields are collaborating to identify instances, where their networks intersect to combine <unk> operational expertise with wbal robust nationwide pharmacy network.
And our organic Walgreens health business, we are pleased with the rollout of our health corners, with Blue Shield, California, and Clover, where we're gathering tremendous insights.
We are in the process of signing on incremental partners and we will initiate the next wave of nine health corners in California in April .
We also continue to refine the consumer app, adding new features to increase access engagement and convenience.
Overall, we are tracking well against our key milestones for Walgreens health and remain very excited about our growth potential.
We are executing across our balanced plans for fiscal 2022, as we build a strong foundation for sustainable low teens EPS growth.
We are re imagining health care and wellbeing for all with a clear path towards accelerated value creation.
With that I'll hand, it over to James to provide more color on our results and our outlook.
Thank you Ralph and good morning.
Unless the linked quarter with focused execution across all of our businesses.
Adjusted EPS was $1 51.
Ahead of expectations, one on a constant currency basis up 26% versus prior year.
We continue to execute skull cohorts escalations and firstly.
While U S retail closings were the highest in 20 years.
International markets continued to recover nicely.
These include solar investments the boondoggle Walgreens business with an EPS impact of <unk>.
These points in the quarter.
Operating cash flow was $1 $1 billion in the quarter.
Please go slow of $669 million.
And finally, we are maintaining our full year outlook.
Low single digit growth in adjusted EPS.
Let's now look at the results in more detail.
Second quarter sales advanced three 6% on a constant currency basis strong growth from Walgreens and the international segment sales contributions from Walgreens Road mode.
Florida, the Florida.
That was a 70 basis point impact from the sales decline and the alliance Walgreens.
Overall.
If you exclude the negative impact from alliance solos.
Positive M&A activity and Walgreens volt core sales growth was high single digits.
Adjusted operating income increased 45, 9% on a constant currency basis.
Susan was strong gross profit performance in both pharmacy and retail in the U S.
On the continued rebound in international sales and profitability.
Adjusted EPS was $1.59 in the quarter.
Constant currency increase of 26%.
And partly by adjusted operating income.
We will go with Hopewell slightly higher tax rate, which reduced EPS growth by 15 percentage points.
Delta EPS decreased four 1%.
The $1 2 billion.
Flipping forward to the company's equity investments related to the impairment of minority investments.
As well as lapping a $191 million gain on the coastal sale of our investment in option care health.
The year ago quarter.
Now, let's move to the year to date highlights.
Year to date sales above $400.
7% on a constant currency basis, including a 400 basis points negatively impactful alliance solar.
Without this impact year to date sales growth was nine 7%.
Adjusted operating income increased 42% on a constant currency basis.
Flip the strong adjusted gross profit growth across all of the owned retail in the U S.
The continued rebound in international segment sales and profitability.
Adjusted EPS of <unk>, 39%.
GAAP EPS increased by $4 54.
To $5.15.
Reflecting a $2 $5 billion also plug scale in the first quarter related to the valuation of our prior investments in Vimizim began shoes as well as not being a $1 $2 billion for metal parts from the <unk> equity earnings of Amerisourcebergen in the year ago period.
Now, let's move to the U S segment.
Sales increased one 2% in the quarter with a strong performance for Walgreens more than offsetting the 680 basis point headwind from a 43% tools deployed in the alliance or specialty business.
Comparable sales advanced nine five.
In the quarter.
Adjusted gross profit increased 13, 7%.
With both pharmacy and retail growing in the low teens.
Strong sales growth and favorable mix was only partially offset by lower reimbursement rates on wholesale and distribution costs.
Adjusted SG&A spend increased eight 3%.
Literally due to investments relating to <unk> solutions will labor.
Partially offset by savings from the transformational cost management program.
SG&A as a percentage of sales increased 120 basis points.
18, 3% of sales.
So this was almost entirely due to an adverse mix in part because of <unk>.
Results of Alliance Rx.
Adjusted operating income growth of 7% was entirely due to strong gross profit performance.
No, let's look in more detail at the U S pharmacy.
<unk> sales declined three points.
And 3%.
Nine one percentage point negative impact from alliance.
Comparable pharmacy sales were up seven 3%.
While comp scripts increased four 7%.
With the COVID-19 solutions with closing, so 275 basis points of script growth.
We completed $11 8 million posted low teens escalations in the quarter.
With limited six 6 million COVID-19 events.
Pharmacy benefit at the end of the quarter from improved seasonal switch as well as higher than expected flu immunizations.
Rover.
<unk> continued to be challenged by temporary operating hour reductions due to labor focuses on a surge of only corn related.
Yes.
Pharmacy adjusted gross profit grew nicely.
Strong sales growth of Walgreens on favorable profit mix more than offset reimbursement pressure.
Turning next to our U S retail business.
<unk> sales increased 14, 7%.
This increase in more than 20 years.
Excluding tobacco.
<unk> were up 15, 7%.
With OTC test kits contributing approximately 690 basis points of growth.
Compared to the second quarter of 2020 pre COVID-19 levels comp sales were up mid teens.
We saw a broad growth across all categories led by a 43% growth in health and wellness driven by our home COVID-19 sales cough cold flu.
Transactions were up nine 5%.
Non discretionary categories performed well with personal care com sales growing nine 7%.
<unk> growing six 5%.
While growth.
Margin deploy with slightly strong sales growth drove low teens growth in gross profit.
Turning next to the international segment.
Always I'll talk to constant currency numbers.
Sales increased seven to consumers across our retail portfolio, particularly in boots UK.
Income was $226 million in the quarter.
16% versus prior year led by sales growth.
Cost control.
In Germany, the integration of the Mckesson the wholesale business is very much on flux.
With operational synergy benefits running ahead of schedule.
Let's now look in more detail our boots UK.
Comparable pharmacy sales increased three 6%.
Stronger demand for services contributed to the increase with sales up almost 74% year on year.
Billings in Covid, 19 testing and Escalations as well as new online hotel services.
Cope retail sales increased 22%.
Despite the headwind created by the Army Corp.
This reflects the strong commercial execution on our recovery from this puts us in the comparable quarter.
Market share has strengthened across all categories with building performing particularly well.
Food store comp sales declined in the quarter.
Footfall at our physical stores increased 52%.
However, the boots dot com business remains at a very strong position.
Sales up 60% compared to the pre COVID-19 levels.
More than 15% of total UK retail sales come through our digital channel.
Up from around 9% pre COVID-19 .
The increasing proportion of sales originate.
Within the former mobile health.
Turning next to Walgreens.
As mentioned last quarter, our majority investment in <unk> and Vimizim be closed on October 29.
Number 24.
Affectively.
Segment sales were $527 million in the quarter with $446 million from village M D.
$81 million from CFO .
Walgreens Post August there was a loss of $77 million in the quarter.
Organic investments increase.
The investments are really done the model.
Below the profit contribution from shoes hold.
And led to a 46.
That's $1 million or loss from majority investments.
<unk> sales advanced 145% on a pro forma basis.
We're executing against the planned investments to grow the business.
Quickly expand the clinic footprint.
<unk> delivered a strong quarter.
<unk> sales growth was 63% with improved operating margins.
By growth from new and recently signed contracts on from expanding our value added proposition with existing health system partners.
Let's now look at some of the key metrics for Walgreens.
We own plus the lethal December 2022 goal of 2 million was more than 100 Walgreens headquarters.
With 47 already up and running.
The next wave of nine locations are scheduled for loans in California in April before co located clinics opened at the end of the second quarter up from 81 at the end of the first quarter.
As of today.
102 co located clinics opened progressing towards our goal of 200 by the end of calendar year.
Through 2022.
Our fiscal 2022 sales goal there is no and the closing of the two centers.
The vessel.
There are no changes to our underlying sales assumptions and as you can see diligently and fuels are delivering impressive growth with pro forma combined sales growth of 128% in the quarter.
Turning next to cash flow.
We generated $1 $3 billion of free cash flow in the first half of the year.
$550 million below prior year.
As we cycled through some exceptional headwinds.
Strong growth in operating income was offset by the working capital impact of a decline in the alliance Walgreens business.
Year over year impact of COVID-19 related with government support.
The increased capital expenditures behind key growth initiatives.
Leading the rollout of new automated micro fulfillment centers with <unk>.
Religion, the footprint expansion.
<unk> Omnichannel and digital investments.
Turning now to full year guidance.
We are maintaining our full year guidance of low single digit growth in adjusted EPS.
We have however, raised our estimate for the base business from 5% to 7% growth to 6% to 8% growth.
To reflect strong U S comparable store portfolios.
Increased testing revenue.
This upside is being reinvested in building out our health care business.
Percentage points previously.
In summary.
We are confirming our full year EPS.
The guidance of low single digit growth.
I would remind you that this is better than our original guidance provided at the start of the fiscal year.
Well, let me know posted by the rules for her closing comments.
Thank you James.
Maybe brief so we can take as many questions as possible.
We are executing well with another strong quarter, marking another step in our transformation.
We are making significant progress across our strategic priorities.
Our team members continue to amaze me with their dedication and talent.
As I visit many of our stores and offices across our regions.
Because of their hard work their Walgreens Boots Alliance has been recognized with recent honors such as being named to SaaS companies list of the world's 50, most innovative companies and times 100, most influential companies.
Our team members in particular provide me with deep conviction.
That we have what it takes to truly reimagine healthcare and well being for all and deliver long term value creation.
Now I would like to open the line for questions operator.
One on your telephone keypad. Our first question is from Lisa Gill with Jpmorgan. Your line is open.
Alright, thanks, very much and thanks for all the comments.
There are things that were pulled forward.
What would be my first question.
And then how are you thinking you made a comment.
About casting I would assume testing was very strong and just.
February in February , but what have you seen more recently when we think about.
Youre higher revenue.
Due to testing is that just because of what you saw it in.
The most recent quarter our expectations going forward.
Yes, hi.
No when I made the comments about ahead of expectations I believe were.
It will be 20, <unk> ahead of consensus but versus our internal forecast we were about pizza hut.
We saw continued volume two wells on.
Phil.
Front of store continues to Corp, and then secondly long testing.
The chrome this PK so.
For the two.
Items that drove our beat for some internal forecast, which I said there was about eight.
We've seen a thoroughly.
We've seen a slowdown obviously since we're on the liberal possible over to Jon Schlemmer.
A couple of comments on what you're seeing currently.
Well I guess, probably the big news there really is just.
We did start Vaccinating the force Sean yesterday.
When we're slowing down as kind of picked up a bit.
Here in the last 24 hours as far as the vaccine because I think on the testing. It did it did slow down as we came through.
As we came through the holidays in January into February announced March but there is there has been a still a steady business there for travel and most people still.
Still needing to test so down quite a bit, but a nice steady stream still ongoing.
And sorry, just as a follow up.
What we see here pharmacist as a provider and I know you've been a big proponent of this and we absolutely agree that throughout the pandemic the pharmacist to have that on the frontline, but but what does that really mean does that change reimbursement does it change.
Their role when.
When we think about them from a health.
A health care perspective.
Yes.
It's pretty it's pretty important point.
And we did.
I know <unk> in D. C. A couple of days ago, we did get a piece of it.
Access though.
And Thats.
Really around provider access and.
And our ability to bill.
Bill under Medicare part D for services around testing and treating influenza.
<unk> and things like that and I really think that's a pretty sizeable addressable market today, that's honestly largely.
So opportunity in our business to have.
We provide access obviously.
Close to 9000 locations and I think our pharmacists and our technicians are more than capable as we've shown.
During the pandemic of delivering these kinds of services.
Pretty big game changer, if we can gain access to that market.
And in terms of.
How do we grow our business and in terms of the value. We can provide the communities we serve.
Great. Thank you.
Our next question is from Steven Valiquette with Barclays. Your line is open.
The boots business and the ongoing strategic review of that asset just a couple of interrelated questions first can you remind us where this asset.
And if I missed this are you able to disclose.
How much would be international.
Specifically related to the boots asset.
That's under strategic review.
Over to you on boots.
No.
Pick some up part of your question Bruce.
In general the Superbowl.
Got it thank you.
Germany, and Germany, it doesn't make very much money with the wholesale business.
Driving a lot of favorable synergies and the go forward position, but right now that's only marginally profitable. So you could presume that the majority of the.
So as related to the UK business I'm.
I'm sorry, the first part of your question.
Okay.
You might have alluded to this a little bit during the prepared remarks, but as we think about just the profitability of that segment.
Fiscal 'twenty two.
Sandra Waechter profitability on pre Covid baselines are we well above or are we still below or are we kind of in line just any rough percentage around that might be helpful. Just to frame. It. Thanks, No I think that I think we're still quite a bit below call. It two or three years Fox.
Foot traffic counting fully recovered in the UK.
I think it's like 15% below where it was two years ago, just in terms of foot traffic.
The UK reactive so first of all they have a fabulous quarter given both the hub.
A big Spike in <unk> in the quarter and that's a very.
Foot traffic driven business model.
Traffic ships ships about 15% below where it was two years ago.
So it hasnt fully recovered and I think if you cycle back a couple of conference calls what we said was we are.
But the boots UK business broadly get back to the pre COVID-19 levels when we're exiting 2022.
When he gets back to pre COVID-19 levels.
Good growth ahead in the UK.
International segment driven by the.
They've done a spectacular job on cost control and then secondly.
The other party.
That system.
Percent growth call it two years.
The response basis.
I don't think there was one of the retailers in the UK.
Have a good.
Dot com business represents 15% of sales. So this is a business that used COVID-19 meso claims to reinvent itself.
ZIP is much much more strongly.
One thing to Covid. So this is a business with lots of momentum is well positioned for the future has a large and fast growing one dot com business. So we're very happy with it but as I said.
So to your question is a good one one fully recover until fiscal year 'twenty three so theres a lot of positive growth.
Okay. That's very helpful. Thanks, Thank you.
The next question is from Elizabeth Anderson with Evercore. Your line is open.
Hi, guys. Thanks, so much further question this morning.
In terms of you talked about sort of reinvesting in the health care business.
When you were talking about the components of that.
The second half EPS numbers.
One could.
Could you talk about sort of where those.
What what those increased investments are.
Then too.
Can you talk about your sort of why are you seeing labor costs come in versus your expectations. I know that you sort of pointed to that as a driver of SG&A and Odyssey with well known that costs are coming up I just wanted to understand sort of how that's trending as we move through the fiscal year. Thanks.
Thanks for the question I'll start off with Walgreens Health and then I'll ask.
Members of the team to join in but from a Walgreens health perspective, we continue to invest as you. All know we made the investments and village Inn D care centric and shields were.
Pleased with where we are with those investments and we're integrating where it's where it makes sense in our health care continuum. So that work is ongoing and we're satisfied in that respect we did mention when we were at our Investor day back in October that we would continue to invest in the business and we'll continue to do that.
And I will also mention that we're seeing.
Really good performance, particularly in our <unk>.
Specialty pharmacy area.
With shields, and so that would be ongoing.
I'm going to ask James to talk with any further detail on Walgreens health with the investments and then John if you could take it from there.
Yes, just quickly Elizabeth Elizabeth.
Basically what we said is we wanted.
We maintained guidance, we took up guidance on the base business soon.
We increased the investments.
Okay.
<unk> four percentage points of EPS of five percentage points. So one is to send a clear message.
So listen we're making strong progress.
And as we were in the second half of the year.
Certainly big shift between first half and cycle second half was about 7% of EPS headwinds coming from the <unk>.
Restaurants, and hotels, specifically, what we're what we're doing we've increased slightly vintage MBS increased slightly with some investments behind me the opening of the co located clinics.
You will recall.
Last conference call, we raised the guidance for the full year.
From 160 clinics with huddle rooms to 200 and now we're just aligning are booked as expenses from the phasing of those rollouts. So probably is the there's a longer term positive on we're just really adjusting the expenses in the short term thing is where we're really doubling down on the organic investments to two.
Require little soft Blue shield of California, and Kroger.
Making strong progress against both of those so called it a reinforcement of <unk>.
Expenses exiting the year, because we're resolutely chew, we want to exit the year stronger than when we entered so this is all about investing in the future growth of the company.
John maybe a possible we'll see you on the labor question.
Yes, I think I'd just make a couple of comments one I'm really excited about the investments that we're making and the Walgreens business.
Sure.
Really deep into our micro fulfillment strategy and rollout.
And as we've talked about previously this is really.
On a.
Program, we're rolling out to support our pharmacists and get work out of our store and free up team member time to really provide additional services in the pharmacy. So I'm real excited about that investment and the progress that we're making there.
Touched on this earlier about some of the potential value drivers. There I think there's just a lot of upside for us in the future. So super excited about that and there's other investments that we're making in the business. In addition to that around pharmacy with automation and our call centers and things like that to improve the experience and take.
And while they work out of the out of the stores and out of the pharmacy.
On the labor side.
As we've talked about over several quarters.
We have made.
Some really significant investments here, we raised R. R.
Starting wage across the company to $13 last fall and will move up to $15 in the fall of 'twenty three.
And.
Dan.
We have also made changes to our tech starting wages went to 15 in the fall into $16 50.
This coming fall.
And I think we've talked about.
About where we were with some investments last quarter, we had about $120 million of investments that we've made.
For wage premiums and hardest anchors with pharmacists as well as <unk>.
Recognition bonuses that we pay to recognize our team members for really the hard work and dedication that they've shown here through the through the pandemic and I think as we look forward and where we are versus our expectations related to all of that I think we included in our updated guidance youre about a $40 million of additional expense in the back half of the year, So pretty close.
To what we expected.
Got it thank you.
Our next question is from a J rice with credit Suisse. Your line is open.
Hi, everybody. Thanks for the question.
I wondered obviously youre rolling out.
This pace both.
Health centers, the Walgreens health centers as well as the village of <unk> got a number of their co located.
Wonder if you could if it's possible to start to talk or provide a little more information on how.
That is impacting the retail operations or can you point to increased script volume or increased foot traffic in the front end that you can attribute to the either the co located at village of D. R.
Or the health centers, how much change in the profile of the stores on those ones that have co located.
Offerings.
Thank you AJ for that question. So first of all it's.
Fill early days for us in terms of the number of village MD clinics tend to see that transfer of script volume over to the stores. What's more important here is that just to remind everyone that this is the primary care physician practice and what we're really building our key relationships the relationship with the consumer between the primary care physician in the farm.
Mrs and Thats, where were seeing the greatest uptick right now is in patient satisfaction and access to healthcare and neighborhood markets and so.
We will continue to look at this.
And look at script uplift, but right now the focus is really on gaining the confidence and creating new relationships in the marketplace. The other thing I will tell you is as we see these expand across the U S.
I will tell you after having walk several of them and watch the patient feedback.
It's comforting to see just how much engagement, we're getting with the patient and also to ask.
Actually great for our pharmacists because they are much more engaged with the patient and the customer because they have the information coming over directly from the primary care physicians office.
Inside the building. So we will continue to update you as we see those numbers come in from script count growth, but it's still a little bit too early for that.
Yes, just just to add onto that just to give you some perspective on it.
You will see two benefits as we go forward. One is we're absolutely convinced on script toughness, we're just not providing the number on a quarterly basis and we'll do a more comprehensive update in the future. So the other one not to underestimate and then this is more of an postpone villages performances. When you have a lot of older practices.
Pharmacist Doctor together, managing patients with liver lower medical costs.
Just a primary care physician by themselves. So the other biggest impulses that has to play out and the co located stores as the combined effort of pharmacists together with a primary care physician and managing the cost between periods overtime, but as I said they have strong evidence on their standalone clinics.
No that will translate over time to improve performance on the clinics with co located with US. So there's a there's a bunch of kpis were watching very very closely but bear in mind that it takes two years for clinics to get up to a kind of a reasonable level of operations. So.
To achieve a breakeven so it does take time for the statistics come through but we're absolutely convinced that both of these would be a great surgery over the coming year.
Sure.
Okay. Thanks, a lot that was very interesting.
Okay.
The next question is from Charles <unk> with Cowen Your line is open.
Thanks for taking the question.
Maybe I want to ask.
You.
Kind of talked about that in addition to Brookfield, California incorporated that you're engaging with a number of interested parties to get to the 2 million lives goal by the end of this year can you kind of give a sense of what type of.
Social speaking with and kind of characterize where you are in those discussions.
How close you might be finding some.
Yes. So thanks for that question. So we are committed that we would have five significant relationships.
By the end of the year and I will tell you that we have two of those one in Blue Blue Shield of California, and then the other one with <unk>. It is a third one that we've just recently signed and we'll be announcing shortly here. So.
So we feel like we're on a really good track record here in terms of how we are looking at these entities and moving them forward. The other significant pieces that we are adding health corners out in California to support the current relationships with Blue Shield of California, and also with Clover. So we've got more of the health corners coming on.
And as just as a reminder, those how corners. They are becoming a health advisors in the community and provide something on top of when you think about the work we're doing with village M. D. So we are encouraged and really aggressive and developing these relationships.
And we have a commercial team that is working alongside to make sure that these come online and then we do the work that we need to do to bring the health corners.
Up to speed to support them. So we will hit the five.
Contracts that we talked about at the beginning of the year.
Great appreciate that and just a follow up.
We think about the work either withheld corners.
Pharmacy with Blue Shield.
Village MD.
Clearly, we saw with Covid testing a real rise people doing at home testing have you thought about the role of at home diagnostics has and how that would fit within sort of the Walgreens health business that Youre building.
Yes, we do.
We learned a lot during the Covid testing process and I think we talked earlier about the work, we're doing with Labcorp to Dubai to provide at home Covid test, though.
Giving us.
A real bright light into what more we can do in this space I know that John Stan Lee's team is developing a lot of the work around diagnostics and at home testing through our retail business I don't know John If you wanted to add anything more to that for that question.
No I do I do think it is.
Yes.
Big opportunity and an excellent way.
For us to engage with our chronic patients to help them manage their disease state. So I think there is plenty of good upside here.
More of these types of tests are becoming available all the time. So we are working closely with a lot of pharma and manufacturers.
Turn gain access to those capabilities as they come to market.
The only other thing I would add to that too is that the discussion earlier around being able to test and treat in our stores, it's not only against the.
Covid virus, but it's also just imagine that there is a strep throat diagnosis.
Pharmacy is hopefully we'll be able to test that in store, which we currently do and then treat and send the patient home and so while that's not in home testing. It is creating an opportunity for the patient to take care of themselves and.
And recover it in a home setting.
That's helpful. Thank you.
The next question is from Brian <unk> with Jefferies. Your line is open.
Hey, good morning, and thanks for taking the question its Jackson on for Brian .
I just wanted to look at the 'twenty two guidance and really.
Use that and where we stand with the back half of the year as a jumping off point to look at 'twenty three.
When you look at what you are implying with your guidance.
Acknowledging that it sounds like there's some upside maybe from fourth boosters.
Our fourth shots, but.
At the higher end of the guidance is about 179 of EPS in the back half of the year.
Historically, you've done roughly 50% or a little bit lower than 50% of your EPS in the back half of your fiscal year.
So when I bridge from call. It $3 60 to $3 70 of EPS, it's implied on a full year basis from that back half guide can you just help me look at the back half of this year bridging to that $5 15 of EPS that you sort of put a stake in the ground around that at Investor day, and how we get there.
Based on back half performance.
So Jack let me start off by I'm going to start really talking about 'twenty three and then any specifics on the second half of the year and the guidance that we've already provided maybe this though.
<unk>.
<unk> discussion for us.
First of all.
We're not providing any guidance for fiscal year 'twenty three but we are exiting the year with a real position of strength.
Executing on what we said we would do including.
The raising of our fiscal 'twenty two guidance that we did just do things in the numbers here.
We indicated that we would make some strategic moves here and make some further investments.
But we're really positioned in 'twenty three to continue to deliver on our Walgreens health investments.
When you is that when you think about it.
Growth in Walgreens health is about 125% and are we still have.
Long term plans to hit a $9 billion to $10 billion number in 2025.
<unk> is around.
If you look at the fiscal 'twenty two guidance there are some additional detail on a $158 million.
That's roughly about 14.
Our October guidance.
Yeah.
We had minimum wage increases in the October guidance.
<unk>.
Two 2% EPS hit.
And for the year, we also.
So just looking at inflation.
To pass through most of that in place.
Scenario impacts and some impacts in the short term.
So if I just wanted to summarize that we're not going to give guidance for 'twenty three.
We can.
Came out of the.
The quarter strong and we are managing through the second half James anything you want to add on the second half.
Yes.
I think as you look through it.
As we said before versus our internal estimates.
Second quarter by about eight so we're reinvesting north.
We believe we've got a bunch of exciting growth opportunities, particularly in Walgreens, but we won't have some exiting the year, but I think as you look into the second half is for EPS growth in Q3.
Chile, which was the peak of that.
Two 7%.
That's what we're cycling through that in Q4, we grew 26%. So the average is somewhere in the 60% range. So again smoke recycling and I think it shouldnt really come with us.
So on the phone.
Some of the milestone vaccinations and the contribution last year.
There's a lot of that is around the <unk>.
There's some headwinds in the second half.
So.
It's almost mark.
The second part.
As logo unsold silver.
So the Walgreens sulfur being signaled well in advance of vaccinations.
We all knew about.
We.
Similar to last year, and the only real new news in the second half is this 5% of latest labor investment.
We have a much healthier than the impact of.
For the older systems.
So those words could it be 2 million 3 million 4 million boxes, it's probably in the midpoint maybe three.
So the upside there probably.
Yes <unk>.
Between now and the end of the year a lot of stuff can change.
Things Im excited about our recently went through with you on them.
We are.
Basically offset all the inflationary impacts and that includes a massive increase in the cost of inter launching ocean freight which is one of the biggest headache.
For most retailers is growing.
So we're sitting in a fairly decent position with regards to installation.
We plan.
It's about the future.
Front of store.
We'll talk to you.
Systems from the Beaumont snow with PC.
Mobility executed very strongly.
So.
Maybe John you could give some insight into the physical store.
Please recall volume on whole loans and other areas into next year. So we're quite excited sorry, the Chuck as we look forward into 2020, but we're not getting into the game of giving 2020 guidance in every conference call yes.
Pick that up I mean I think.
A couple of things.
Obviously, we've talked some about my Walgreens in mass personalization I think we've done a great job.
Albeit we have a lot of upside.
With our with our program here and kind of where we're going between.
Between that program and the Wall Street advertising for them.
And different things that we're working on there. So I think just from an omni channel experience some of the capabilities. We built on where we can go here over the next couple of years I think a lot of very focus on own brand. We think we have opportunity to expand.
Additional categories.
We're making some good investments there in terms of how we go to market and how we position it within the store are pretty excited.
About about the things that we're doing there and then I think we've talked a little bit about the fact that we are taking a very careful look at a lot of our merchandising and where were going for the future.
Yeah.
From a front end perspective, so as we look at that.
Probably been a a full store reset in most of these stores.
Ever.
We think merchandising opportunity ahead of us on the front end as well.
Paula.
Got it I appreciate all the color.
Great job on the quarter.
Thank you.
The next question is from George Hill with Deutsche Bank. Your line is open Hey, good morning, guys and thanks for taking the question I guess I was going to ask another question about Walgreens health, if I look at the presentation versus the prior quarter and is pretty sharply despite increasing.
A number of co located clinics I was wondering if you could just put a little more color around your expectations, there and kind of what's driving the revision.
Yes.
We should have probably made up to its only June .
Two care centers, we've had some regulatory follow up questions.
The closing we previously assumed would be.
So were just delayed in terms of course.
Put on long term projections.
Just look at the pro forma assumes.
On the two businesses full agenda.
Growing 145%.
When shielding switches virtually are more mature.
It was probably a substantially.
Demand in villages very much.
We can't get involved in anything.
Consensus is doing.
Doing doing less now because of the acquisition hasn't closed, but our understanding is they are doing quite well as well and so we're actually really excited because this pro forma assumes open honest, we exited the year will be gone.
Sure.
Company with a target within three used to be up 10 billion approaching $10 billion.
The more we get our arms around this on the more we get into what the more we're convinced.
These are achieving pretty easily achievable targets.
That's helpful. Thank you.
<unk>.
Yes.
That will conclude our question and answer session I will turn the call over.
I'm glad we were able to take several quarters.
Question today and cover a range of topics, including <unk>.
Continued success, we're seeing in our core business, particularly vaccinations I think you've recognized the momentum in orange.
International segment, our significant progress in our healthcare business.
Also two new ways that we're serving our patients and our customers even better.
Further so we're really pleased that you recognize that I couldnt be more excited about where we're heading right now and we're pleased that the great work of our teams can be seen in our strong quarter.
We will continue to execute well across our strategic priorities and keep you up to date on those.
And we're really confident in our actions.
The plans that we have to exit fiscal 2022 and in a position of strength much stronger than before the pandemic, which was our plan all along.
So as we build our growth sustainable value creation, we've been talking about we'll keep you posted we have got work ahead of us, but we're encouraged and excited.
Thank you and talk to you again real soon.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating.
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