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Walgreens Boots (WBA; Ba2, BBB- Neg) 3Q24 (3m ending May)

CONSUMER STAPLES

Equities down -15% in pre-market adding to a -40% YTD slide. €26s holding unch to tighter.

  • FY24 EPS guidance cut it's blaming on US Retail Pharmacy business (80% of group sales) facing weaker consumer environment that will pushing promotions higher & margins lower. It's added "headwinds persisting into FY25" (i.e. for the year beginning in Sept 2024). FY25 guidance to be provided in October earnings.
  • We are not clear on why Boots IPO - and now based on WSJ headlines sale itself - was called off. Boots is performing strongly (sales +6% this qtr).
  • Perhaps its the reliance on the international business (16% of sales and contains Boots UK) that is holding up group's performance. International runs 3.1% operating margin vs. the core US Retail Pharmacy's 2.2%. The final segment, US Healthcare, is still running operating losses.
  • YTD International is 24% of the group's operating income, up from the low-single digit it used to contribute couple of years ago. More US store closures and weak guidance for US Retail Pharmacy leaves wanning any reliance from that segment a tough ask.

We still see the £25s as cheap but have no interest on taking a view on any (longer) duration for WBA (including €26s).

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