Walgreens Earnings FY 2024 - Key CFO Insights

CFO Comments:

There were significant non-cash charges in 2024, including in Q4/2024. This will allow for offsetting of tax liabilities.

Adjusted EPS of $2.88 was down 28%
GAAP net loss was $10.01, largely due to non-cash charges.

Net sales were up 5% YoY and 6.5% vs. the prior year's Q4.
Cost savings of $1B/year in the U.S. retail pharmacy segment helped to offset weakness in retail performance.
Pharmacy Q4 adjusted gross margin was down.
Consumer weakness in non-essential categories such as beauty, seasonal and general merchandise. Positive impact from health and wellness. Also, higher shrink levels impacted profitability.

Cost discipline and focus on creating growth.

Cash flow impacted by legal matters cost them $934M and $386M in pension plan annuity premium contributions. Their free cash flow was positive for FY 2024, ta $23M. This is effectively zero, but a big improvement over FY23.
Net debt reduction of $1.9B, and lease obligations reduced by $1.2B.
Strong liquidity of $3.2B in C&E, and $5.8B in revolver capacity. They should be able to weather a small storm.

Guidance for EPS FY 2025: $1.40 to $1.80.
They renegotiated 80% of their 2025 pharmacy volume / PBM.
Consumer pressure assumed for FY2025, which requires them to cut costs further, accelerate store closure (accretive to cash flow). They will close 500 stores in FY2025, and 1,200 over the next three years. This is based on leases and owned stores, and the cash flow of individual stores. They are focused on the details of dark rent. This should fund the investments into remaining stores (to improve and modernize customer experience in the stores).

There are another 800 stores where there is a focus on operational improvement and cash flow generation, not closure, but they can be targeted to close if improvements do not occur.

Headwinds in 2025:
Higher tax rates.
Higher interest expense

Good news from international profitability, led by Boots retail and Germany.​

FY 2025: Working capital to generate $500M and $150M in capx reductions. Legal payments of $1.1B is a headwind. Monetization of assets will be redeployed to reducing net debt. Lease obligations will further decline through store closure. The turn-around over the next few years will help cash flow.

In conclusion, I am not sure there will be any free cash flow growth over 2024 as cash will go towards paying down debt. I sure hope they can continue their dividend of $1.00 per year.