Walgreens Boots Alliance (NASDAQ:WBA) recently reported its fourth-quarter earnings for 2024, revealing a significant decline in its adjusted earnings per share (EPS) by 41% year-over-year to $0.39. The company's full-year adjusted EPS also saw a 28% decrease, landing at $2.88. Despite these declines, WBA managed to reduce its net debt by $1.9 billion in fiscal 2024 and generated positive cash flow for both the fourth quarter and the full year. The company has set its fiscal 2025 adjusted EPS guidance between $1.40 and $1.80.
Key Takeaways
- Adjusted EPS for Q4 2024 decreased by 41% to $0.39.
- Full-year adjusted EPS declined by 28% to $2.88.
- Net debt reduction of $1.9 billion in fiscal 2024.
- Plans to close 1,200 stores over three years as part of a store optimization program.
- Fiscal 2025 EPS guidance set between $1.40 and $1.80.
Company Performance
Walgreens Boots Alliance faced a challenging fiscal 2024, with significant declines in its quarterly and annual EPS. The company is navigating a tough consumer environment, marked by price-sensitive behavior and slightly lower vaccination rates. Despite these hurdles, WBA continues to focus on operational efficiency, achieving over $1 billion in cost savings and planning to optimize working capital by $500 million in fiscal 2025.
Financial Highlights
- Q4 Adjusted EPS: $0.39, down 41% year-over-year.
- Full Year Adjusted EPS: $2.88, down 28%.
- Net Debt Reduction: $1.9 billion in fiscal 2024.
- Positive cash flow in Q4 and the full year.
Outlook & Guidance
Walgreens Boots Alliance is setting its sights on stabilizing core operations and improving pharmacy margins in fiscal 2025. The company expects its U.S. Healthcare segment EBITDA to improve by $250 million and anticipates growth in international segment profitability. WBA is also exploring monetization options for its VillageMD unit and plans to launch over 300 new own-brand SKUs in fiscal 2025.
Executive Commentary
CEO Tim Wentworth emphasized the company's focus on clear operational and financial priorities, stating, "We are in the early stages of a turnaround that will take time." He also highlighted the importance of monetizing assets without destroying value, reflecting a strategic approach to enhancing shareholder value.
Q&A
During the earnings call, analysts inquired about pharmacy reimbursement rates, with WBA having negotiated 80% of contract volume for 2025. Questions also arose regarding the company's flexible approach to dividends and the potential monetization of VillageMD, which WBA is handling cautiously to preserve value.
Risks and Challenges
- Continued price-sensitive consumer behavior could impact sales.
- Lower vaccination rates may affect pharmacy revenues.
- Potential challenges in executing store closures and achieving cost savings.
- Macroeconomic pressures and competitive landscape in the retail pharmacy sector.
- Dependence on successful negotiation of pharmacy reimbursement rates.
Full transcript - Walgreens Boots Alliance Inc (WBA) Q4 2024:
Conference Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to Walgreens Boots Alliance 4th Quarter 20 24 Results 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.
Please note that today's conference is being recorded. I will now hand the conference over to your speaker host, Tiffany Kanaga, Vice President of Global Investor Relations. Please go ahead.
Tiffany Kanaga, Vice President of Global Investor Relations, Walgreens Boots Alliance: Good morning. Thank you for joining us for the Walgreens Boots Alliance earnings call for the Q4 of fiscal year 2024. I'm Tiffany Kanaga, Vice President of Global Investor Relations. Joining me on today's call are Tim Wentworth, our Chief Executive Officer and Manmohan Mahajan, Global Chief Financial Officer. In addition, Mary Lungowski, President of U.
S. Healthcare Rick Gates, Senior Vice President and Walgreens' Chief Pharmacy Officer and Tracy Brown, President of Walgreens Retail and Chief Customer Officer will participate in Q and A. Also in the room this morning is Eric Wasserstrom, Senior Vice President of Investor Relations. As always, during the conference call, we anticipate making projections and forward looking statements based on our current expectations. Our actual results could differ materially due to a number of factors, including those listed on Slide 2 and those outlined in our latest Form 10 ks 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 can find our press release and the slides referenced on this call in the Investors section of the Walgreens Boots Alliance website. During this call, we will discuss certain non GAAP financial measures. These measures are reconciled to the most directly comparable GAAP financial measures and the reconciliations are set forth in the press release. You may also refer to the slides posted in the Investors section of our website for reconciliations of non GAAP measures to the most comparable GAAP measures discussed during this earnings call.
We encourage you to review the comparable GAAP measures and reconciliation to non GAAP values in the other earnings materials we provided. I will now turn the call over to Tim.
Tim Wentworth, Chief Executive Officer, Walgreens Boots Alliance: Thanks, Tiffany, and good morning, everyone. Our Q4 and fiscal full year results reflected our focused execution on several critical initiatives against a challenging backdrop for our consumer. When I joined, I had 3 immediate priorities. 1st, build a new management team. 2nd, address items within our control that could improve our financial condition within the year.
And 3rd, undertake a strategic review of our collection of valuable assets to lay the groundwork for our longer term turnaround. With respect to the short term actions, we successfully hit our 3 declared goals, cutting costs by over $1,000,000,000 reducing CapEx by over $700,000,000 and realizing over $600,000,000 in benefits from working capital initiatives. These factors contributed to our positive cash flow in the 4th quarter and helped achieve full year cash flow that was also positive. Building on this momentum is critical as we turn our executional focus to stabilizing our core economics, improving our operating cash flow and strengthening our balance sheet beyond the $1,900,000,000 net debt reduction achieved in fiscal 2024. Equally important, we have conducted a thorough strategic review.
Coming out of this work, we are an organization focused on 2 guiding principles with clear operational and financial priorities. The first guiding principle relates to our operating model. WBA is reorienting to its legacy strength as a retail pharmacy led company. This reorientation allows us to leverage our key strategic assets of consumer trust, convenience and relevance. Our position of trust stems from the millions of face to face interactions our consumers have with our pharmacy personnel every day.
And we will continue to take actions now and for the long term to be the first choice for retail pharmacy and health services. Having earned our consumers' trust, indeed our reason to exist, we also want to be accessible and convenient, but we need to be appropriately sized. Consequently, we are announcing an expanded footprint optimization program. We have over 8,000 stores of which the majority, approximately 6,000 are profitable. This solid base supports our conviction in a retail pharmacy led model that is relevant to our consumers and we intend to invest in these stores over the next several years.
Part of the funding for this investment will come from accelerating the closure of underperforming stores. We expect to close approximately 1200 of those over the next 3 years and reduce the fixed costs associated with them. Executing on this program will realign our footprint to a healthier store base that we believe will enable us to respond more dynamically to shifts in consumer behavior and buying preferences. Our ability to respond to a changing environment needs to improve and was a critical objective of our strategic review. We intend to close this competitive gap with some of our peers who have invested in similar capabilities over the past several years.
While the decision to close the store is never an easy one, we feel confident in our ability to continue to serve our customers. And we intend to follow our historic practice to redeploy the majority of the workforce in those stores that we close. In addition to being trusted and convenient, we must be relevant to today's consumer. To this end, we are reevaluating our merchandising strategy to offer a refreshed assortment of products, including our own brands. By being more selective with national brands and expanding our own brands, we are sharpening our focus as a destination for categories for which we believe we are uniquely positioned to lead like health and wellness and specifically women's health.
We launched over 300 new own brand SKUs this year focused in key categories and we expect to launch another 300 plus in fiscal 2025. Our second guiding principle is a disciplined financial model, which targets strong free cash flow generation and appropriate leverage. Our focus in the near term is on improving our operating cash flows through cost and working capital management, while establishing the baseline for AOI growth. In fiscal 2025, we expect to realize $500,000,000 in working capital initiatives and $150,000,000 in further CapEx reduction. In addition, we are focused on monetizing non core assets to generate cash.
Chief among these is VillageMD. While our plans with this investment may take several different forms in all scenarios related to VillageMD, we are committed to redeploying any proceeds to reduce our net debt and improve the health of our balance sheet. Our efforts around VillageMD are just one example of how on a go forward basis, we are maximizing optionality around our portfolio of assets. As we consider if and when to appropriately monetize these assets, we will continue to harvest gains from our portfolio of public equities, Syncora and BrightSpring to generate cash and further enable debt reduction. As we go forward, we have 3 priorities to stabilize pharmacy margin, advance the execution of our retail strategy and improve our net debt position.
This emphasis on improving the strength and quality of our balance sheet underscores Mamohan's leadership in establishing our financial priorities to which he will speak in a few moments. Let me now bring some visibility to the status of our discussions surrounding pharmacy margin and reimbursement rates. We continue to be confident that we are in a multiyear process to reframe our relationship with PBMs on reimbursement. We are changing the dialogue to ensure we both procure drugs at a fair price and that we are paid fairly for the value that we provide. As part of our efforts, we have worked with some PBMs to bring more stability and predictability to our reimbursement, while maintaining broad network access.
It continues to be our goal to serve as many patients and communities as possible. However, going forward, Walgreens will make difficult decisions if a PBM will not provide reasonable reimbursement for our services in order to maintain our presence in communities across America. Today, we have a high level of visibility into reimbursement for approximately 80% of the anticipated script volume in fiscal 2025. We are pleased with the willingness that some of our PBM partners have shown to consider current trends and adjust reimbursement such as rebalancing brands and generics and we look forward to working with those partners on how we can grow together. Several significant contracts are in the process of being negotiated over the next year and we will pursue rational reimbursement that ensures we are paid fairly.
Turning to NAADAC, based on the latest data, we have seen it begin to stabilize. However, it is critical that regulators work alongside us and industry groups to implement a solution that reduces future instability and ensures that NAADAC is a predictable product benchmark for pharmacy reimbursement. Finally, outside of working with PBMs and payers to evolve reimbursement, we continue to progress our efforts to broaden and deepen the services we get paid for. Provider status and other new payment arrangements remain a key opportunity for us to fully deploy our pharmacist capabilities, lighten the burden on the broader healthcare system and further stabilize and improve our overall pharmacy economics. Many of our actions across this turnaround will take time, but I am confident that we have the right team, the right focus and the right strategy.
Minoan will detail our expectations for fiscal 2025 in a moment. Our most recent quarterly results underscore the importance of executing with intent to stabilize the core business irrespective of the macroeconomic backdrop. We have a lot of work to do and 2025 will be an important rebasing year to drive longer term value creation. And before I conclude, I wanted to say a few things about how we're supporting the communities recently impacted by hurricanes Helene and Milton. Of course, our thoughts are with all our patients, customers, team members and everyone else that's been impacted by these terrible natural disasters.
In times of crisis, it is always heartening to see the generosity of America's response. At Walgreens, we've leveraged our public private partnerships to implement a national pin pad program with the American Red Cross to raise over $5,000,000 which has been used to donate water and other urgent supplies for the communities in need. Walgreens has also made a donation to the American Red Cross Hurricane Helene Fund. In terms of the impact to us, about 10.50 of our stores were brought offline by the storms or in preparation for them, but we have restored all but 16 of them. We're working to make sure we continue to provide essential services to these impacted communities.
I will now turn it over to Mamawin to review our financial results.
Manmohan Mahajan, Global Chief Financial Officer, Walgreens Boots Alliance: Thank you, Tim, and good morning, everyone. Overall, 4th quarter results were in line with our expectations. Thematically, the quarter reflected the same trends that characterized our full year results, with pressure on U. S. Retail pharmacy partly offset by growth in our U.
S. Healthcare segment, while our international business continues to perform in line with our expectations. Adjusted EPS of $0.39 decreased 41% year over year on a constant currency basis. Approximately 70% of this decline relates to lower sale leaseback gains, lapping the reversal of incentive accruals in the prior year and lower Syncora equity income. Headwinds in the U.
S. Retail pharmacy businesses were partly offset by cost savings initiatives and growth in U. S. Healthcare business. GAAP results for the quarter included certain non cash charges.
We recognized a $2,300,000,000 charge for valuation allowance on deferred tax assets. These deferred tax assets were primarily related to opioid liabilities recognized in prior periods and they remain available for the company to offset potential future income, including gains from monetizing assets. We also recognized $696,000,000 in impairment charges for CareCentric's goodwill and our equity investment in Chinese pharma company Goda. As a reminder, last year's GAAP results included certain charges related to opioid claims and lawsuits. Let's move on to the full year highlights.
Adjusted EPS of $2.88 declined 28% on a constant currency basis due to the softer U. S. Retail pharmacy performance and significantly lower sale leaseback gains. This was partly offset by cost savings initiatives and improved profitability in U. S.
Healthcare. GAAP net loss was $8,600,000,000 compared to a loss of $3,100,000,000 in fiscal 'twenty three. GAAP results included certain non cash impairment charges related to VillageMD goodwill in the Q2. The prior year period included $5,500,000,000 after tax charge for opioid related claims and lawsuits, partly offset by a $1,700,000,000 after tax gain on sale of Syncora and Option Care Health (NASDAQ:OPCH) shares. Now let me cover U.
S. Retail Pharmacy segment. Comparable sales grew 8.3% year on year, driven by pharmacy and partly offset by decline in retail sales. AOI decreased 60% versus the prior year quarter. Approximately 2 thirds of this decline relates to lower sale leaseback gains, lapping the reversal of incentive accruals in the prior year and lower Syncora equity income.
Headwinds in the retail and pharmacy businesses were partly offset by cost saving initiatives. We exceeded our goal of $1,000,000,000 in cost savings for the year with most of the benefit recognized in the U. S. Retail Pharmacy segment. Let me now turn to U.
S. Pharmacy. Pharmacy comp sales increased 11.7% driven by brand inflation and mix impacts. Comp (WA:CMP) scripts excluding immunizations grew 2.6% in the quarter. We continue to track in line with the overall prescription market year to date.
Pharmacy adjusted gross margin declined versus the prior year quarter, negatively impacted by net reimbursement pressure, brand inflation and mix impacts. Recent fluctuations in NAADAC resulted in $17,000,000 of impact in the quarter versus the prior year. Turning next to U. S. Retail business.
Comparable retail sales declined 1.7% in the quarter. As Tim mentioned, the consumer backdrop remains a challenge. We see this with our customer as sales pressure in the quarter was almost entirely driven by non essential categories. We continue to refine our pricing and promotion strategy, which helped to improve gross profit margin in the quarter. At the same time, value seeking behavior and new product launches during the year have driven our own brand penetration up 70 basis points in the quarter, finishing at over 17% of sales to end the year.
Retail adjusted gross margin improved year over year, positively impacted by category mix towards health and wellness products, partly offset by higher shrink levels. Turning next to the International segment, and as always, I will talk in constant currency numbers. Total (EPA:TTEF) sales grew 3.7% with Germany wholesale increasing 8.2% and Boots UK up 2.3%. Segment adjusted gross profit increased 2% with growth across all businesses. Adjusted operating income was down 11%, primarily due to lapping real estate gains in the year ago period.
Let's now cover Boots UK in detail. Boots UK continues to perform well. Comp retail sales increased 6% with continued market share gains and all categories showing growth. Boots.com sales increased 19% year on year and represented 15% of our UK retail sales. Turning next to U.
S. Healthcare. The U. S. Healthcare segment finished ahead of expectations for the year, delivering $66,000,000 in adjusted EBITDA.
Sales of $2,100,000,000 increased 7% compared to the prior year quarter. VillageMD sales of $1,500,000,000 grew 7% year on year. The increase was driven by growth in full risk lives and fee for service revenue, partly offset by the impact of clinic closures. Shield sales were up 28%, driven by growth within existing partnerships. Adjusted EBITDA for the Q4 was $65,000,000 an improvement of $94,000,000 compared to last year, driven by cost discipline at VillageMD and growth from Shields.
Turning next to cash flow. Operating cash flow of $1,000,000,000 for fiscal 2024 was negatively impacted by $934,000,000 in payments related to legal matters and $386,000,000 in energy premium contributions related to the boots pension plan. We exceeded our target of $600,000,000 in capital expenditure reductions in fiscal 2024, delivering $736,000,000 in savings versus fiscal 2023. Similarly, we also exceeded our target of $500,000,000 of benefits from working capital initiatives in fiscal 2024. Free cash flow of $23,000,000 declined by $642,000,000 versus the prior year due to lower earnings, higher payments related to legal matters and phasing of working capital, partly offset by lower capital expenditures.
Looking at the 4th quarter, free cash flow of $1,100,000,000 increased 98% compared to the prior year period. The increase was driven by benefits from working capital initiatives, lower legal payments and lower capital expenditures. Over the course of fiscal 2024, we reduced our net debt by nearly $2,000,000,000 and our lease obligations by over $1,000,000,000 and our liquidity position is healthy. We ended the year with $3,200,000,000 in cash and cash equivalents and $5,800,000,000 of revolver capacity. Looking ahead, one of our key priorities is to strengthen the balance sheet condition of the company.
We are focused on improving our cash flow generation and net debt position through a combination of operational actions and asset monetization activities. These priorities have significant influence on our expectations for this upcoming fiscal year, which I will detail now. As Tim underscored, our priorities for fiscal 2025 is to stabilize our core operations, while we make progress on the longer term strategic and operational turnaround. This view is reflected in our adjusted EPS guidance of $1.40 to $1.80 This guidance is based on 3 central assumptions. First, in U.
S. Pharmacy, we anticipate continued pressure on reimbursement rates. We have negotiated approximately 80% of the contract volume for calendar year 2025. Due to the multi year nature of these contracts, there is still more progress to be made, but believe we are taking incremental steps towards our goal of reducing the impact of reimbursement pressure on pharmacy margin. The second major assumption is that our customer is likely to remain under pressure and continue to demonstrate the same price sensitive shopping behavior that we experienced in fiscal 2024.
In response to this dynamic, we're executing on a number of retail initiatives over multiple periods. In the near term, we're taking cost actions to improve our operating leverage, including the accelerated optimization of our fiscal footprint. We expect these closures to be accretive to our cash flows in fiscal 2025. Lastly, we expect growth in our Healthcare segment and in the International segment. Let's cover the footprint optimization program next.
We expect to close approximately 1200 stores over the next 3 years with about 500 targeted to close in fiscal 2025. Within fiscal 2025, we expect this activity to be weighted towards the back half of the year. We are prioritizing closing locations that are cash flow negative, underperforming stores where we own the locations and ones where the lease expirations are coming due in the next few years. This focus is expected to partially mitigate the incremental burden of dark rent. The economic benefits of this approach should begin to be tangible in fiscal 2025.
By accelerating the scope of our footprint optimization program and focusing on stores with weakest cash generation, we expect to reduce our working capital needs and improve our cash flows over the next 12 months. We expect the in year benefit from footprint optimization program to be approximately $100,000,000 of AOI with positive cash contributions, including the cash benefits from working capital and sales of owned stores, net of closure costs. Over time, these actions should also enable us to fund the investments we plan to make in higher performing stores as we look to improve our customers' in store experience. For this year, we're prioritizing investment in those stores that should be the recipient of the Scripps merchandise and the foot traffic from the stores we're closing. In our discussions with the investment community last quarter, we highlighted that we were evaluating 2,000 stores as part of our optimization efforts.
Net of the 1200 that we have identified for closure, this indicates that there are another 800 stores for which we are focused on improving their operating performance and cash flows. However, as has always been the case, we will continuously evaluate this group and all our stores to ensure we ultimately operate with the best possible footprint. Let's now turn to additional guidance line items. We are providing additional guidance on certain enterprise and segment level line items for modeling purposes. At the midpoint of our guidance range for adjusted EPS, about 60% of the year over year decline reflects the impact of higher tax rate and lower contributions from sale leaseback and Syncora earnings.
On a corporate level, we're anticipating higher interest expense due to lapping prior year gains on bonds. Let me cover segment level details next. For the U. S. Retail Pharmacy segment, at the midpoint of the range, we expect a year over year decline in AOI of $1,100,000,000 Approximately 40% of this decline is driven by headwinds from sale leaseback gains and prior Syncora share sales.
We anticipate that fiscal 2025 will be the last year of headwinds from sale leaseback gains. Excluding these impacts, we expect headwinds from net reimbursement pressure and retail to drive the remaining year over year declines, partially offset by the impact of footprint optimization program. Let me share some additional KPI information. We expect the overall market growth for script volume to be between 2.5% to 3% with our total prescription growth impacted by store closures. We expect vaccinations to be slightly lower compared to fiscal year 2024.
Guidance assumes no significant changes to the recent trends impacting pharmacy margin, including brand inflation, mix, authorized generics and continuation of most recent trends in NAADAC. We expect retail comparable sales of negative 2% to negative 3% and cough, cold and flu season incidences are expected to be slightly down versus last year. We expect international segment profitability to grow in fiscal year 2025 led by Boots retail business in Germany. We expect adjusted EBITDA for the U. S.
Healthcare segment to improve by $250,000,000 at the midpoint compared to the fiscal year 2024 to a range of $280,000,000 to $350,000,000 Let's conclude the guidance discussion with cash flow and capital allocation. We expect our efforts to stabilize retail sales and pharmacy margin to take hold over time. In the near term, we will continue to bolster our free cash flows through working capital optimization initiatives as well as rightsizing our capital expenditures. In fiscal 2025, we expect working capital initiatives to generate approximately $500,000,000 of free cash flows and capital expenditure reductions of approximately $150,000,000 We anticipate an AOI headwind of approximately $400,000,000 from lower sale leaseback gains and Syncora equity earnings. This will not have any impact on free cash flow.
In fiscal 2024, we began to refocus our financial philosophy. This includes decisions to simplify our financial reporting, such as wind down of the sale leaseback program and Syncora share sales, but also in terms of capital allocation priorities. As we monetize assets in fiscal 'twenty four, we reduced our net debt position by $1,900,000,000 This is a good start, but there is still much more work to be done to continue to strengthen our balance sheet in the coming years. Given this imperative, we intend to further monetize non core assets. Additionally, we expect our lease liabilities to decline further due to the conclusion of our sale leaseback program and as we execute against our footprint optimization program.
We believe these actions will improve our cash position and financial flexibility as we focus on reducing net debt while supporting the successful execution of our turnaround over the next few years. With that, let me pass it back to Tim.
Tim Wentworth, Chief Executive Officer, Walgreens Boots Alliance: Thanks, Vimalan. Before opening the call up for Q and A, let me leave you with a few closing thoughts. We are confident that we have the right team and the right strategy and we are laser focused on 2 principles that we are a retail pharmacy led organization and that the economics of this model must be disciplined and sustainable. To this end, we intend to meaningfully strengthen our balance sheet over the next few years and there is a clear path to doing so, as we work to stabilize our financial performance, monetize non strategic assets, reduce our lease exposure and address our net debt position. As part of this approach, we intend to adopt a flexible and pragmatic capital allocation strategy.
To be clear, we believe our reorientation to retail pharmacy has a bright future. We're engaging in a multiyear program with a long term goal of appropriately sized and well positioned fleet of stores and an industry leading customer experience in both retail and pharmacy across consumer channels. And we continue to believe that the adjacent strategic businesses in which we've invested can incrementally contribute to value creation over the longer term.
Manmohan Mahajan, Global Chief Financial Officer, Walgreens Boots Alliance: We are
Tim Wentworth, Chief Executive Officer, Walgreens Boots Alliance: in the early stages of a turnaround that will take time, but the fiscal Q4 was an important building block in the foundation of this turnaround and we expect further progress in fiscal 2025. With that, let's take questions. Operator?
Conference Operator: Thank you. And our first question coming from the line of Lisa Gill with JPMorgan.
Lisa Gill, Analyst, JPMorgan: Good morning and thanks for taking my question. Tim, I just want to focus on a couple of things. One would just be some of the comments that were made early on around the restructuring of the reimbursement. When you talk about 80% visibility, you also talked about very difficult decisions around maybe contracting going forward. So how do we one balance that when I think about improving rates?
Do we expect improving rates in 2025? Is this more of like a 3 year plan? And then secondly, when you think about those difficult decisions, are you thinking about leaving some networks? Like how do I put all those pieces together?
Tim Wentworth, Chief Executive Officer, Walgreens Boots Alliance: Sure. Thanks and good morning, Lisa. So first of all, just to answer it directly, as it relates to 2025, we have a lessening of the reimbursement pressure if you looked at a trend line, which by the way continues a couple of year dynamic, which I've talked about before, where coming in, I was fairly confident that we had seen, the payers becoming more understanding and realistic about what we could give. And at the end of the day, if all of the retailers are showing up with less being taken out of the market to then share, it begins to support that dynamic. And so in 2025, we do see less.
Let me start with that. Number 2, there's no question that there is a recognition by all parties, PBMs, payers and our peers that the dynamics have changed. And we see that clearly reflected in the conversations, very constructive conversations we have had, both in the 80% where we have actually landed the contracts and we have seen different sorts of mechanisms put in the contracts. There's not a one size fits all. We've seen some cost plus.
We've seen carve outs for new brand drugs or existing brands that are at high prices. We've seen rebalancing of brand and generic. And we're showing up open minded to how we reconfigure the risk and also protect our ability to not see unmanageable reimbursement pressures that frankly aren't economic for us and not frankly market required. All of that said, the 20% that are left, what I would say is those are constructive conversations. I don't want to portray them as something different.
But in all of our conversations, not just the 20%, we showed up willing to make a difficult decision if we weren't going to be in a range of being compensated fairly. And it doesn't mean we're raising prices. Let me be clear about that. It means that we are arresting the downward pressure because we are not taking money out of the market either through purchasing or through the dynamics of generics, generic inflation, new generics and so forth, to underpin what would otherwise be our ability to increase the reimbursement that we give. So all of that to say, because I know this is a very important topic to our investors and to the market.
Even the 20% constructive conversations, let me be clear, we're willing to walk away from a line of business if it doesn't make sense. I've said that there are examples where we would rather have 5% of a cash paying CADRE than 100% of a reimbursed CADRE. And so from that standpoint, again, we know that. I believe the payers are very clear about it. And I'm very confident that over a 2 to 3 year period, we will have reset the framework for reimbursement discussions and frankly be talking more about other value creation that we can do together than simply unit cost reductions.
Lisa Gill, Analyst, JPMorgan: That's very helpful. And just one follow on. That would be as we think about the cadence of 25%, I know Momo (NASDAQ:MOMO) and talked about the store closings impacting more of the back half of the year. Anything else you would call out as I think about how earnings will develop in 2025?
Manmohan Mahajan, Global Chief Financial Officer, Walgreens Boots Alliance: Yes. From a cadence perspective, Lisa, you got to think about maybe the same trend as we have seen in last couple of years. We do have roughly around 500 closures, which are back half weighted. But then we also had closures in the second half of fiscal twenty twenty four. So we're going to see the benefit from store closure continue to scale within 25 and then beyond over the next 2 years as well.
Lisa Gill, Analyst, JPMorgan: Thank you.
Tim Wentworth, Chief Executive Officer, Walgreens Boots Alliance: Operator, next question.
Conference Operator: Thank you. And our next question coming from the line of Anne Hynes with Mizuho (NYSE:MFG) Group. Your line is open.
Anne Hynes, Analyst, Mizuho Group: Hi, good morning. Thank you. Thanks for all the details on free cash flow. I just have a question on timing. I know Tim in your prepared remarks, you talked about fiscal 2025 is a rebasing year.
You want to get AOI to a point where you can grow. Is that fiscal 2025 or do we really have to wait until you're able to stabilize these PBM contracts and grow from there? So any timing that you can provide on when you think would be a base to grow from? And then secondly, I think last conference call you talked about renegotiating some vendor contracts. Can you provide any update on that progress?
That would be great. Thank you.
George Hill, Analyst, Deutsche Bank (ETR:DBKGn): Yes, I'm sorry.
Tim Wentworth, Chief Executive Officer, Walgreens Boots Alliance: Could you just repeat your second question, which contract?
Anne Hynes, Analyst, Mizuho Group: I think some supplier contracts, whether it's drug distribution or anything in the front store. I think the company has talked about maybe the potential of being able to renegotiate the contract. So any progress on that would be great.
Tim Wentworth, Chief Executive Officer, Walgreens Boots Alliance: Sure. Thanks. So, first from a timing standpoint, as you can appreciate, we've said all along, this is a multi year turnaround. This is a rebasing year in 2025. I'll let we're not giving 3 year guidance at this point other than to say that we believe this re platforming of the company and the things that we've said we are going to do and are already doing are meaningfully positioning us for growth in the longer term, both in terms of pharmacy services, U.
S. Healthcare and the front of the store. I'll let Momoan give you any additional color as it relates to the longer term perspective that we have. Coming back to the second part of your question and then I'll turn it over to Momoan. As it relates to Syncora, because I guess that is your question.
As you know, we do have a longer term arrangement with them that goes until 2019. We meet with them regularly to make sure that they understand sort of where we sit and we evaluate together how they can help us, both in terms of our cost of acquisition as well as frankly operationally, because they're a crucial part of our underlying operating model. And we're not going to give any updates at this time, but there is a meaningful dialogue that we're having. It is very constructive and we believe that there are ways that we can together, inclusive of inventory, working capital, micro fulfillment related activities and indeed purchasing acquisition cost that there are things we can do together to allow for the one thing we both want, which is us to grow because that's good for both us and them. Now I'll turn it over to Mohan to just give you any additional color as it relates to the longer term outlook that your first question asked about.
Manmohan Mahajan, Global Chief Financial Officer, Walgreens Boots Alliance: Sure. So not providing long term guidance today, but as Tim mentioned, goal is to grow AOI and free cash flows over the next 3 years. Maybe a couple of themes for fiscal 2025. The guidance we shared today, it reflects roughly around $0.80 to $0.85 roughly around 60% headwind from higher tax rate CLO Synchora shares recently as well as lower CLO leaseback contribution. And so $0.25 is a better base when you think from a quality perspective.
We do have roughly around $250,000,000 of equity earnings expected in fiscal 2025 from Syncora. Now those will we will lap those in fiscal 2020 6 as our existing variable prepaid forward contracts comes to maturity in late fiscal 2025 early 2026. From a business core underlying business performance perspective, we do expect U. S. Healthcare to continue to grow and we expect international to grow in fiscal 2025.
As Tim mentioned in his prepared remarks, from a U. S. RP perspective, from a longer term growth perspective, we're very focused both on pharmacy margin as well as retail sales in the U. S. Those benefits from those initiatives, we expect to scale over next 3 years.
And so in the meantime, from a fiscal 2025 perspective, we're going to be very focused on cost discipline, including the footprint optimization program that we announced today, which we expect to be accretive in the year. And as I said earlier, the benefit from the optimization program, we expect it to continue to scale as we close locations over the next 3 years. And the benefit in the year is roughly around $100,000,000 So that I think gives you a shape of $25,000,000 And getting out of $25,000,000 what are going to be some of the factors we're looking at longer term.
Conference Operator: Thank you. And our next question coming from the line of George Hill with Deutsche Bank. Your line is now open.
George Hill, Analyst, Deutsche Bank: Yes. Good morning, guys. And Munoz, maybe I'd missed this, but are you able to talk about like what is the discrete impact of the store closures in fiscal 2025 and maybe from a run rate basis to the U. S. Pharmacy business?
And then my quick follow-up question would be, are you able to provide any color on earnings cadence in the U. S. Pharmacy segment as we think about the progression of fiscal 2025 just
Tim Wentworth, Chief Executive Officer, Walgreens Boots Alliance: kind of given the slope of
George Hill, Analyst, Deutsche Bank: how earnings have progressed recently? I think that would be helpful. Thank you.
Manmohan Mahajan, Global Chief Financial Officer, Walgreens Boots Alliance: Sure. So far store closure benefits in the year, we expect roughly around $100,000,000 contribution to AOI in fiscal 2025, and that will then continue to scale into 20 6 and 7 as we close more locations over time. So that's kind of the run rate. From a cash perspective, we expect footprint optimization to be accretive in the year as well. And I think the way simple way to think about this is the benefit from working capital as we close locations, as well as there are certain owned locations that we're going to be closing and monetizing in the year that significantly outweighs the closure cost in the year.
So that's on the store closure. On the cadence side, look, I think we're going to be pretty much in line with how the cadence has played out over the last couple of years. So don't expect significant changes there, first half versus second half.
Anne Hynes, Analyst, Mizuho Group: Thank you.
Conference Operator: Thank you. And our next question coming from the line of Charles Rhyee with TD Securities. Your line is open.
George Hill, Analyst, Deutsche Bank: Yes. Thanks for taking the question. Hey, just to follow-up on Lisa's question. Tim, I think you said that with the 80% renegotiated in terms of the contract volume, that is lower, but is that then stable going forward? So this is sort of at least where 80% is setting a new baseline.
And then secondly, I appreciate all the comments around free cash flow, but can you give us a sense for where free cash flow will be for fiscal 'twenty five? I mean, there's a lot of moving parts here, but if I kind of look at some of these pieces, we're still coming out negative free cash flow for the year. Just maybe give us a sense for where that kind of sits when we think about the high end and low end of the EPS guide? Thanks.
Tim Wentworth, Chief Executive Officer, Walgreens Boots Alliance: Sure. Thanks. And I'll let Mohan take the second question. As it relates to the contracts, again, what I'd reinforce is, it is an ongoing and dynamic process. When I call it a reset, it's more a structural reset than it is we're going to do something that then just stands still.
And so those contracts typically are multi year contracts, which is why it's going to take us a few years to actually work through all of the contracts that we have, which in many cases have us taking more risk or less reimbursement than we believe is ultimately appropriate and sustainable. And so it is an ongoing dynamic. And furthermore, in my background, probably this won't surprise you to hear, I don't view them even when they're done that we're done. There are opportunities to sit back down based on dynamics that occur, whether it's the pipeline, new indications, new products, trying to win a new client. And we work with those PBMs and payers to help them with that.
So from that standpoint, the 80% is sort of a it's not an abstract number. It's an actual number. It says we had 100% of a group of contracts that would have been renegotiated for the 2025 plan year. We have 80% along in that, which is by itself not shocking because as you can imagine, PBMs actually operate on a January year for plan design. So we're actually right where I would expect us to be.
And I'm not surprised that the remaining contracts are again the ones that probably require a bit more work by both parties at the table to reach a better place and I think we'll get there. And, Mohan, do you want to take the second question?
Manmohan Mahajan, Global Chief Financial Officer, Walgreens Boots Alliance: Sure. So from a free cash flow perspective, 2025, a couple of themes for you to consider. First is, we expect adjusted operating income to decline in 2025. Now roughly around $400,000,000 of that is due to the lower sale leaseback contribution as well as lower earnings from Syncora. Those items do not impact free cash flow.
So we just wanted to flag that. Outside of that, the legal payments in the fiscal year 2025 expected to slightly increase as well, roughly around $1,050,000,000 total. Before we and then before they go down in $26,000,000 we expect them to decline over 26. And so what we're working through is partly offsetting these headwinds from A, working capital optimization of roughly around $500,000,000 in the year. And then B, on the CapEx side, we expect our CapEx to be declining roughly around $150,000,000 in the year.
So those kind of are the building blocks from a free cash flow perspective. Lastly, I'd say this. Look, we'll continue to have a pragmatic approach to capital allocation going forward. As you've seen in Q4, we were able to monetize our non core assets. We do have some flexibility in our portfolio.
And so we will continue to tap into that as needed.
George Hill, Analyst, Deutsche Bank: Great. Thank you.
Conference Operator: And our next question coming from the line of Eric Bercher with Nephron Research. Your line is open.
George Hill, Analyst, Deutsche Bank: Thank you. A question on U. S. Healthcare, given the guiding principles you laid out, Tim. I guess question 1 is, is there any component here that's key to the strategy of rebasing around the retail pharmacy customer?
And then, Mohan, maybe I'll ask you on VillageMD. Is the focus here, you mentioned profitability or profitable growth from the other elements of the business. Is there a reduction in investment or stabilization in the underlying VillageMD operation?
Tim Wentworth, Chief Executive Officer, Walgreens Boots Alliance: Sure. Thanks for that, Eric. I'll take the first part. And as you directed the second to Ramon, I'll let him take it. In terms of what's core, first of all, it starts with, frankly, our clinicians and our team, which is the underlying asset that enables us to look at other services, whether it's for payers or for pharma in the back of our stores.
And so our U. S. Retail strategy is a healthcare strategy. I would start with that and it's crucial. That's why we've re centered on the pharmacy as a core to our strategy.
I would then say inside of that, what's probably not as well appreciated as will be over time is our specialty pharmacy, which is really when you look at where the growth of patient need is, payer need is, being the largest independent specialty pharmacy and having the assets that we have and the team that we have is a tremendous starting point to envisioning doing more, whether that's for the pharma companies that actually originate the products, the biosimilar companies that make biosimilars or indeed the payers who want to have their patients have access to a highly reliable clinically focused, trusted company. And so from that standpoint, we see that as a critical asset. Other things are very complementary to that such as Shield and CareCentrix to providing a broader set of ecosystem services or services to a unique set of payers in the case of shields being health systems. And so those are really important assets for us incrementally to the core asset that we have, which is being a retail pharmacy. Do you want to take the second question, Mohan?
Manmohan Mahajan, Global Chief Financial Officer, Walgreens Boots Alliance: Yes, sure. So let me start Q4 U. S. Healthcare segment performance. Couple of things there.
Common theme throughout the year has been Shield continues to grow expansion within the existing partnership and then we have seen improvement within VillageMD as well, driven by significant cost reduction program that they've gone through. Now in Q4, we also experienced slightly higher contribution from their risk based book. And so that's driving a little bit of over performance in the quarter. As you look out to 2025, we expect these themes to continue to play. We expect Shield to continue to grow within their existing partnership, just continue to expand.
And then on the Village side, there is benefit of costs in fiscal 2025, including the wraparound benefits from clinic closures that they have executed in fiscal 2024. Outside of that, we do expect their contribution margin to also improve slightly year over year, driven by higher fee for service volume and a little bit growth on the risk we have signed.
Conference Operator: Thank you. And our next question coming from the line of Kevin Caliendo with UBS. Your line is open.
Kevin Caliendo, Analyst, UBS: Thanks. Thanks for taking my question. From the store closures, just within the guide, I'm trying to understand, what do you anticipate over time you're going to retain in terms of Rx and foot traffic? Is there sort of a magic number as you go through this analysis? Is it used to be 70%, is it 50%?
Like how do you think about that in terms of what you're guiding for or what's implied in the guidance for that?
Tim Wentworth, Chief Executive Officer, Walgreens Boots Alliance: Yes. Thanks for the question. That's an important dimension, one of a number of dimensions that as we've evaluated the 2,000 stores we spoke about last quarter and now the 1200 that we've announced that we'll be actually closing, and as we continue to evaluate the 800. The recapture rate is critical and it's something that we're very, very precise about as it relates to store level dynamics. And so there is no one number.
And there is an aggregating number that I suppose that if we add it up to 1200 times the store level assumptions that we are able to make based on a number of dynamics related to how many other stores are there nearby that are ours, how many are competitive, what's the profile of the patients that we're caring for today, etcetera. And there's a number of dynamics. So it's not as simple as a number, but it is very much a piece that we look at and challenge ourselves. We obviously have a lot of experience, both buying files and moving patients, but also moving patients as we've closed. This year, we closed a couple of 100 stores.
So we know how to do this. We've gotten very good at predicting. We've also gotten obviously very good at engaging our patients. And so we've got a number and we will that is a key assumption. What I would say though is as part of our broader retail reconfiguration and strategy, our loyalty program, digital interfacing with our customers and so forth, we believe will enable additional touch points with these customers to both serve them potentially, whether that's a home delivery and other things, if they're not as close to a store or indeed engage them in other ways.
We are not basing any upside assumption in our underlying model for those things, but we believe it will be meaningfully, contributory to bringing most of the patients in many of the stores and some of the patients from other stores along with us. And again, we want to serve every patient and that is the goal, but we're realistic in terms of that number when we look at these closures particularly.
Manmohan Mahajan, Global Chief Financial Officer, Walgreens Boots Alliance: And if I can ask
Tim Wentworth, Chief Executive Officer, Walgreens Boots Alliance: a quick follow-up. You talk a
Kevin Caliendo, Analyst, UBS: lot about deleveraging and getting your net debt down and improving free cash flow. I didn't necessarily hear full endorsement of the current dividend. And I'd just love to understand how you think about it. It's obviously at a pretty elevated level here. Is the dividend as is like part of the strategy for shareholders going forward as far as you think about it?
Or is it something that you're going to keep an eye on, for
Tim Wentworth, Chief Executive Officer, Walgreens Boots Alliance: lack of a better way to describe it?
Manmohan Mahajan, Global Chief Financial Officer, Walgreens Boots Alliance: What you heard Mimohan say
Tim Wentworth, Chief Executive Officer, Walgreens Boots Alliance: is that we have adopted a flexible and pragmatic capital allocation strategy and we are going to continually evaluate our situation broadly. We are highly committed to being efficient with our capital and to doing the things that you've already heard us talk about. And we will absolutely continue to monitor and make changes to our capital allocation, including better aligning our dividend with our long term earnings power, if we believe that that's the appropriate thing to do. And again, that requires meaningful discussion with our Board on both our long term plan as well as the dividend that we're paying right now. And those conversations, as you saw early in my tenure here, are continual.
And so I don't have any news for you today. We, in fact, believe in the near term, we can continue to monetize these non strategic assets that Mimohan spoke about earlier to improve our balance sheet over time. But everything is on the table.
Conference Operator: Thank you. And our next question coming from the line of Elizabeth Anderson with Evercore ISI. Your line is open.
Elizabeth Anderson, Analyst, Evercore ISI: Hey, guys. Thanks so much for the commentary and additional color. I have a question on the working capital improvements. Can you help me parse out sort of how you were thinking, I mean, obviously, those come from a variety of different things. You talked about suppliers, your store closures.
Can you think help us think through sort of the buckets of that and how
Anne Hynes, Analyst, Mizuho Group: to think about that so
Elizabeth Anderson, Analyst, Evercore ISI: we can think about it sort of on a multiyear basis like how much is coming from stores versus supplier agreements and other factors?
Tim Wentworth, Chief Executive Officer, Walgreens Boots Alliance: Sure. I'm going to let Mohan take it other than to just say at the front because I feel I have to. It's the result of a lot of things being very well managed and executed by a team that is extraordinarily focused and aware of the opportunity that we have in working capital. I have never been prouder of a team in terms of the discipline that they brought to bear, as you heard, both in terms of CapEx, expenses and working capital. And what you're going to hear is it's not just one thing, it is execution across a number of dimensions of the business.
I'll let Mohan give you a bit more color.
Manmohan Mahajan, Global Chief Financial Officer, Walgreens Boots Alliance: Yes, sure. So for us, as we work through working capital, our goal is always to look at all components of cash conversion cycle. And as you think about some of the initiatives that have played out in fiscal 2024, let me just talk about on the retail side. We've talked about assortment mix that we have at the stores today. And one of the initiatives we ran is how do we make sure that we take out unproductive inventory out of the stores and monetize that and replace it with more productive inventory.
Now on the Rx side, things like Nucleus, which is our micro fulfillment centers, is also giving us ability to optimize our inventory levels within the company as well. And then there are a number of initiatives on our account receivables and improving the collectability and timing of it, as well as rightsizing the timing on our accounts payable as well. So all components of it being looked at. As you think about kind of the incremental opportunities within fiscal 2025, store closure is one of them. As we close these locations, it gives us an opportunity to take the remaining inventory and optimize that within the remaining network and that generates obviously free cash in the year.
Elizabeth Anderson, Analyst, Evercore ISI: Got it. That's very helpful. And then just as a quick follow-up, maybe on the OpEx and things, how
Tiffany Kanaga, Vice President of Global Investor Relations, Walgreens Boots Alliance: do you feel like I
Elizabeth Anderson, Analyst, Evercore ISI: mean, you've obviously executed many years of OpEx improvement. How much more opportunity on the sort of course corporate base, particularly in U. S. Retail do you see available? I know you're sort of talking about like on the store count adjusting that, but is that how do we think about that as a driver of AOI going forward?
Tim Wentworth, Chief Executive Officer, Walgreens Boots Alliance: Sure. Well, what you just said is really important, which is if we close 1200 stores as we plan over the next 2 to 3 years, then there's no question that there are stranded costs that we will go after. And our goal is to frankly be out ahead of those store closures as it relates to managing those costs. So that's important. And it's something that we are very committed to.
2nd, it is now the culture of the company, I would say, which is that it will be a way of life forever in this company to look at ways that we can get smarter about every dollar that we spend, particularly as it relates to non direct store related pieces. I'm we are looking I'm looking we are looking to be able to invest back into our stores, both in terms of capital and frankly in terms of our associates, in terms of training and so forth. And so from that standpoint, the things that I think will be different this time as we look at these is we have a management team that's really focused on this topic. We have a level of discipline that I think we've shown already and will continue to show and we execute. And so that will continue.
Is the opportunity as big as it was $4,000,000,000 ago? No, it's not. But we continue to see meaningful opportunity across our business to improve what we do and do it in a more efficient way. And so that's just going to continue. And there are assumptions in this plan for our continued optimization in advance of those store closures from, again, principally a corporate level.
What you would see in our stores, and I have to say this, because you can walk in the stores and see We don't have a lot of de staffing left in the stores at all. Our stores are tight. And so from that standpoint, that's not where you will see us making a difference. And that point, from our standpoint, we know we can come back to you and talk about our strategic positioning vis a vis Amazon (NASDAQ:AMZN) and so forth, but we think those people in our stores are the crucial touch point. And so there we're looking to invest even as we right size our support system.
Conference Operator: Thank you. And our next question coming from the line of Michael Cherny with Leerink Partners. Your line is open.
Michael Cherny, Analyst, Leerink Partners: Good morning. Thanks for taking the question. Maybe just diving back in on the U. S. Healthcare side, I appreciate the color you gave on the various different moving pieces, in particular on VillageMD, but also the dynamics expectations on monetization.
Is there anything that's, I guess, holding you back on that front and moving faster? I know, Tim, it's something you've talked about basically since the time you started about recognizing the need to fit the business. And so as you think about the pathway for monetization, given all the dynamics around free cash flow you've discussed, given the questions about flexibility and regarding the dividend, what are some of the thought process we have in terms of understanding the checkpoints you need to see to complete a process for monetization?
Tim Wentworth, Chief Executive Officer, Walgreens Boots Alliance: Well, the key asset in the U. S. Healthcare business where we are looking to monetize, as you know, is VillageMD. And our goal is to monetize it, but to do it without destroying value unnecessarily. And so from that standpoint, it has been a longer process.
I wish I could have wiggled my nose and just made it happen, believe me, because we've declared it's not a crucial part of our future. We also believe it's a great business and will do well on its own. But the process of getting there has been longer than we would have hoped, but we're going to be very methodical and very appropriate in trying to preserve value. There are physicians that are part of that, that are outstanding and ensuring that we have thought through their situation and that we become even more of an employer of choice, for example, means that we're going to be really thoughtful about how we do it. And the good news is, you saw Sels and Coram pay down $1,900,000,000 in debt over the course of the year.
We have ways of dealing with the short term cash situation. We have a lot of room on the revolver. And so rushing that particular decision would have not achieved anything and would have potentially destroyed even more value. So we'll keep you posted as to what happens there. We're very engaged there.
Mary Langowski and our team working with both the Village team and the other investors have been relentless, but it is very complicated and therefore we're going to get it right.
Conference Operator: Thank you. And our last questioner coming from the line of Stephanie Davis with Barclays (LON:BARC). Your line is open.
Tiffany Kanaga, Vice President of Global Investor Relations, Walgreens Boots Alliance0: Hey, guys. Thanks for taking my question. Just going beyond into the VillageMD kind of topic again, you have a lot of cost reduction that's been going on, but I was hoping you could walk us through any other margin improvement initiatives beyond just cost takeout location closures? And looking forward, you did announce a new CCO hire that has value based experience that's very relevant to this business. How should we think about how Jason fits into the puzzle?
Tim Wentworth, Chief Executive Officer, Walgreens Boots Alliance: I'm sorry, the last pretty question, how should we think about?
Tiffany Kanaga, Vice President of Global Investor Relations, Walgreens Boots Alliance0: Jason, he's a
Tiffany Kanaga, Vice President of Global Investor Relations, Walgreens Boots Alliance: new CCO hire.
Tim Wentworth, Chief Executive Officer, Walgreens Boots Alliance: Oh, gosh.
Tiffany Kanaga, Vice President of Global Investor Relations, Walgreens Boots Alliance0: No one mentioned him yet.
Tim Wentworth, Chief Executive Officer, Walgreens Boots Alliance: Yes. No, he's great. I mean, listen, we've and Jason just sent Mary and I just a note after his 1st week about being more excited even than he planned on being based on his conversations with payers, pharma and his colleagues. So, listen, margin expansion isn't just cost cutting to your point and we have a number of growth initiatives that Mary is incubating right now and bringing Jason on should be and is, and I appreciate you recognize it, a clear signal that we believe we have services that are highly valuable to others. We haven't talked today, for example, about Pharma Company and some of their go direct initiatives.
We are a natural partner there and are in fact inside of one of those. And so from that standpoint, I couldn't be more excited to ultimately come and tell you more about some of those growth initiatives. That said, I want to be really clear with you that we're in the early innings of that. And so we have not baked all kinds of upside into our guidance as a result of those. We believe they will take time.
The sales cycles, particularly on a B2B, are not short in many cases. But boy, we have built Mary has built a tremendous team and I think has laser focus on a number of areas, specialty, pharma services, data and analytics and a number of other things where we believe we can double down and having a team, including Jason, is meaningful. I'm going to let Mary just she can give a little bit more color if she wants, because certainly she has been actually very quietly building a very effective team.
Tiffany Kanaga, Vice President of Global Investor Relations, Walgreens Boots Alliance1: Thank you, Tim. Thanks, Stephanie. We've said it before that U. S. Healthcare business is really focused on a disciplined growth strategy that's really focused on near term shareholder value creation and cost discipline.
And so as part of that, we spent the last 6 months exiting non material programs, programs we didn't think would generate growth over the near term. And now we're focused on 2 primary things, growth of our current core and adjacent assets. So the things that Tim mentioned, specialty pharmacy, shield, data analytics, our pharma services. And then secondly, doing more of what we do best, which is really built on our core infrastructure and reorienting to the pharmacy business. So reaching, engaging and activating patients and providing services to payer and pharma.
So Jason is really a part of this and a critical part of this with his CVS and Optum experience. He'll be driving a focused approach to commercialization, B2B partnerships and services development.
Conference Operator: Thank you. And I will now turn the call back over to Mr. Tim Letmore for any closing remarks.
George Hill, Analyst, Deutsche Bank: Great. Thank you.
Tim Wentworth, Chief Executive Officer, Walgreens Boots Alliance: And I want to thank everybody for dialing in this morning. I've been reflecting on my first almost year here at Walgreens. And the first thing I would tell you is, if I had it to do over again, I would have only done it more quickly getting here. It has been quite a year. And we've in that year built a brand new team here with 6 new leaders all based in Chicago sitting around the table every day thinking about how to serve our patients better and at the same time grow our business.
And then you just heard about Jason, we have hired a whole coterie of leaders at the next level who are going to enable this strategy beyond the senior leaders that sit around my table. We drove a disciplined approach to capital and we've achieved aggressive goals for expenses, working capital and CapEx and we achieved positive cash flow for the year. We reduced our net debt by $1,900,000,000 and we simplified our financial reporting, something many of you told us you wanted to see. We held market share in pharmacy for the first time in a number of years. We conducted a thorough strategic review that is driving the VillageMD process we just spoke about.
It's driving a meaningful, 6 pillar retail modernization initiative that includes merchandising, own brand, loyalty, digital and the footprint evaluation that we spoke about today. We additionally set a framework for multi year reconfiguring pharmacy reimbursement. We are meeting the consumer where they are. This guidance does not assume that the consumer is magically stronger in an amazing way by the end of the year. We believe that the consumer needs to be met where they are.
I have a brother-in-law, Al Miller, who is one of the experts of real estate in this country, consumer real estate. And we were talking this weekend about the fact that the consumer, they may get stronger, but boy, you wouldn't count on it right now. And certainly, many industry counterparts to ours are seeing that. So we've been realistic about the consumer. And as important, maybe the most important thing we've done is evolve their culture to where over 300,000 team members will be the ultimate differentiator in the lives of our patients and our customers.
I look forward to updating you on our progress in upcoming quarters. Thanks very much for dialing in.
Conference Operator: Ladies and gentlemen, that does conclude the conference for today. Thank you for your participation and you
Tiffany Kanaga, Vice President of Global Investor Relations, Walgreens Boots Alliance: may
Conference Operator: now disconnect.
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