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spk_0: good morning my name is rob will be a conference operator today at this time i would like to welcome everyone to the walgreens boots alliance second quarter two thousand and twenty three earnings conference call all i have been placed on need to prevent any background noise after the speakers remarks there will be a question and answer session if you like to ask the question during this time simply press star followed by the number one on your telephone keypad if you would like to withdraw your question again press the star one thank you can sneak an egg vice president of global investor relations you may begin your conference
spk_1: good morning thank you for joining us for the walgreen the lions earnings call for the second quarter of fiscal year twenty twenty three i'm tiffany canada vice president of global investor elation joining me on today's call or robber or chief executive officer and games kill or chief financial officer brigade thing you're right president and she pharmacy officer at walgreens and john driscoll president of us healthcare will participate in vienna a cuddle will be approximately one hour in length including you and i let me know if that all references to the curve in nineteen headwind include us back the drive through test and ot theater as always during the conference call we anticipate making projection and forward looking statements based on our current expectations or actual results could differ materially due to a number of factors including those listed on fly to and those outlined in our latest form ten k and ten you filed with the securities and exchange commission we undertake no obligation to publicly update any for looking statement after this presentation weather as a result of new information future events changes than function or otherwise you can find are practically and the flight referenced on that call and the investors section of the walgreen with the life website the slide in the press release also contain further information about the non gaap financial measures that we will discuss during this call on outrun the call over to rot think tiffany and good morning everyone
spk_2: cbs have delivered have followed second quarter overall results are in line with our expectation as a slow start earlier in the quarter with offered by strong acceleration in february the overall decline in adjusted apia with against growth of twenty six and a half percent last year and again reflects the anticipated headwind from lower covert demand and or investment than labour and the you have helped her second this is our final quarter of lapping last year's pico the contribution and we're looking forward to accelerated growth ahead working quarter sales grew foreign and have person and constant currency us grid volume growth exceeded garden and are resilient retail business is successfully lapping record prior year performance it it was also a landmark quarter for transformation to help here we end up to three and a half billion dollars to support village in the acquisition of thumb and hell creative one of them leaving independent provider group in the country at the same time we are taking decisive action to unlock value and strengthen the company by simplifying the portfolio our strategy is working we are performing against to plan and we will be relentless and driving continued progress that head we are maintaining or for your gardens were just apia of four dollars forty five and to four dollars fifty them with good visibility into the key drivers of robust and accelerated growth in the second half importantly the influx of here we are clearly pivoting too strong projected ie ps growth in the mid twenties and the second half i am very confident in our future enabled by our execution and the bold and governments we are making today we're making progress against each of our for strategic priority let's start with the core business you're pharmacy conscripts grew three and a half percent excluding immunization exceeding or gardens the three percent growth and improving from two point one person last quarter through our focus investment we have returned an incremental five hundred stores turn normal pharmacy the operating hours
spk_1: our market your trend are improving and we both six percent growth employers with normal hours while we have more work ahead of us to achieve or four years script recapture gold i'm very encouraged by our momentum withdrawn acceleration into january and february
spk_2: our farm and the team is supported by our nine michael fulfillment centers which allow our promises more time to focus on patient care and clinical forbidden expanding on the critical role they already provide and community in retail you're calm failed excluding tobacco declined slightly a very solid performance against the fifteen point seven percent growth we deliberate last year we achieve mid single digit growth after backing out the coded ot feed head when from last year's on a crime surge the can be you and real value that walgreens offers is resonating with consumers in a challenging environment and back our com accelerated to high single digits in february while we also drove another quarter of margin expansion in our international folkman boot had a third quarter was retail can't growth of sixteen percent on top of twenty two percent last year the business achieved his eighth consecutive quarter of retail market share game now turning to our second strategic priority we are accelerating the build out of our healthcare growth engine the addition of public health is transformational be create one of the largest integrated provider platforms in the us delivering quality affordable care for all patient population regardless of insurance or pay or time this highly strategic transaction expand village and be a dreadful market were primary care multi specialty an urgent year and reinforces our approach across the entire care continuum from it will accelerate the us healthcare segment to scale and profit we'd be meaningful synergy potential over time with integration activities already begun we have auto added r for pierce partner for their again a business horizon blue cross blue shield of new jersey and now had fine for clinical trials contract
spk_1: she'll help illusion and care centric both continue to perform well which led to the accelerated acquisition of both entities
spk_2: shield called on december twenty eighth and cared been truth is scheduled to close with quarter on a combined baited our best in class acids drove pro forma filled group of thirty percent and the quarter and that month in this group of funded through action we continue to take to better align or portfolio and streamline the business we've been locked meaningful value fiscal year today with over three point six billion dollars and after tax proceeds our retail pharmacy business provide the fall of foundation for our leading health care of them to deliver you across the for care continuum driving our long term growth strategy we are able to reach across both digital and physical channeled to guy consumers through the complexity than healthcare we are building the scale and resources to help help plant and patient improve outcomes and lower costs and only walgreens can do there are significant opportunities for synergies allowing you to pursue value base care and rift arrangement which will demonstrate the importance of an integrated approach we are focused on expanding our roots movement reporting integrated care model broadening er pharmacy value proposition and driving operational efficiency
spk_1: the combination of our best and quiet healthcare asset a physical presence or affirmative footprint are trusted brand and upscale digital offering create the platform that is unmatched in the industry
spk_2: walgreens will increasingly be viewed as a partner of choice we are uniquely positioned to engage consumers to manage their individual health and wellness whenever and wherever they need
spk_3: with that
spk_2: oh handed over to jane to provide more color on our revolt and our outlook
spk_4: thank you ross i'm good morning in summary we delivered on strong performance and a coworker what we saw some favorable freezing cold operate in performance was mostly in line with our internal expectations second quarter adjust the bps have one dollar sixteen cents to climb by twenty five point eight percent on the constant currency basis and loose was entirely due to a twenty six percent heard wind from coal with nineteen vaccinations interesting strong retail performance in both the us and informational on sequence to improvement the us conscripts more than also ten percentage points of headwinds from payroll investments in the us and expansion overheard clear business james from plumbed cash mobilization in germany on sale and leaseback net curtains in the you was contributed approximately twelve cents to adjusted a ps group however this was entirely offset by reduced ownership of murray source bergen of five cents prior year a cold blood related one time benefits in the uk of three cents and currency impacts on investment write offs of for sense despite a slow starts at a quarter we delivered four point five percent sales growth on a constant currency basis with strong momentum exiting the quarter february so poor sales growth up high single digits more than offsetting weather related challenges in december and unnoticeable slow down and respiratory virus cases in january comparable sales and us retail pharmacy were up three point one percent despite not being a very strong prior year a comp of nine point five percent conscript growth of three point five percent exceeded our guidance of three percent international sales advanced nine percent led by the uk retail business which delivered a sixteen percent comp and or us healthcare business continues to rapidly scale which sales exceeding one point six billion dollars in the quarter and growing thirty percent on a pro forma basis so in summary we had a solid quarter and based on the inline performance we are maintaining our full year just dps guidance of four dollars forty five cents to four dollars sixty five cents let's now look at the results in more detail adjusted operating income decline twenty five percent on a constant currency basis and this was entirely due to a much lower contribution from covert nineteen vaccinations interesting
spk_5: which led to a headwind of twenty eight percent
spk_4: labour investments and pharmacy on minimum wage war and nine percentage point headwind whereas the expansion of the us healthcare segment was an impact of five percentage points the labour on healthcare headwinds we're all set by strong performance across us retail and international excluding covert nineteen o t c test kids us retail contributor twelve percentage points of group
spk_5: i'm continued strength and international contributor nine percentage points
spk_4: adjusted fps was one dollar sixteen cents a constant currency decline of twenty five point eight percent entirely due to a much lower contribution from cold nineteen gaap net earnings were seven hundred and three million dollars a decline of twenty percent first his prior year
spk_5: the current quarter included a four hundred and fifty four million dollar after tax gain from the sale of a b c shares and a two hundred and sixty six million dollar after tax george for opioid related claims on lawsuits now let's move to the year to date highlights
spk_4: you to date sales increase two point eight percent on a constant currency basis adjust the dps was down twenty eight percent on a constant currency basis mostly due to a much lower contribution from covert nineteen with an adverse impact of approximately twenty two percent gaap earnings were a loss of three billion dollars compared to net earnings of four point five billion dollars and twenty twenty two the year to date period included a five point four billion dollar after tax charge for opioid related claims on lawsuits partly offset by a one point four billion dollar after tax game on the sale of a be seizures
spk_6: additionally
spk_4: we are comparing to a prior year period that included a two point five billion dollar after tax game on the company's investments in village empty and shields
spk_5: now let's move to the us retail pharmacy segment
spk_4: sales declined slightly and the quarter reflecting a three percent ride from lower corporate nineteen contributions on a two point five percent headwind from alliance or rex the good news is that alliance or as now cycled through it's contract losses and the called the nineteen headwind will lessen in subsequent quarters com sales increased three point one percent or less comes on top of a very strong prior your column of nine point five percent adjusted operating income decline thirty two point eight percent year on year broadly in line with our expectations this was entirely due to a twenty nine percent decline from lower corporate nineteen contribution and ten percent from planned labour investments ongoing reimbursement pressure was offset by retail gross profit growth and history and any savings we continue to expect a oh i drove to a separate in the second half due to a loner with nineteen headwind less reimbursement pressure favorable cost of goods sold timing and script recapture initiatives game for let me know turned to us pharmacy pharmacy sales increase your point three percent despite a tree percentage point headwind from alliance or legs and two percentage points from lower covert nineteen contributions calm pharmacy sales were up for point nine percent lapping the seven point three percent come to us year calm scripts were up zero point two percent
spk_5: we administered two point four million colbert nineteen vaccinations and the second quarter down a significant eighty percent versus prior year
spk_4: i'm about six hundred thousand covert nineteen pcr tears down over ninety percent excluding immunizations conscripts group three point five percent exceeding are forecast of three percent we are encouraged by the one hundred and forty basis points sequential improvement rubin in part by ongoing script recapture religion us including the return of an incremental five hundred stores to normal operating hours as expected adjusted gross profit am margin decline due to the lower contribution from covert nineteen vaccinations and testing and ongoing reimbursement pressure net of procurement savings pharmacy reimbursement was broadly in line with our expectations and represented a lower level of pressure compared to the prior year looking forward we expect a year over year growth in the second half as the covert headwind lessons script comps continued to build and second half reimbursement there's less of a year on year headwind compared to the first off of the year turning next to the us retail business overall we were happy with the retail performance in the quarter with good underlying sales friends and continued margin improvement
spk_2: while retail com sales decreased one percent in the quarter we were up against a record fourteen point seven percent comp in the prior year
spk_4: which as you will recall included strong on pc testing volume related to the army crone search excluding tobacco com sales were down zero point five percent but on a two years stuck basis com sales advanced by more than fifteen percent looking up the quarter lower sales of at home covert nineteen tess lead to a five hundred paces point head when them this most strong underlying friends led by a thirteen percent the increasing cough kong flu nine percent growth and beauty and six percent increase in consumer consumables and general merchandise we have a slower start the unexpected with december weather impacts leading to week seasonal sales and some seasonal write downs and we sold lessening respiratory virus cases in january
spk_7: however
spk_4: february was very strong with high single digit come group retail gross margin performance remain strong in the quarter reflecting the effect of margin management including strategic pricing on promotional optimization and improve shrink
spk_8: looking ahead
spk_4: we expect a return to positive com friends in the second half as we will be facing a smaller headwind from colbert nineteen test kits and we have meaningful opportunities to drive a lie i drop from own brands the my walgreens loyalty program and strategic margin management turning next for the international segment and as always i'll talk the constant currency numbers the international segment continues to perform well sales increased nine percent with growth across all international markets boots uk was up eleven percent and germany wholesale grew seven point five percent
spk_5: adjusted operate in income was three hundred and fifty two million dollars up sixty six percent versus prior year adjusted operating income benefited from one hundred and ten billion dollars in real estate games from the plan cash mobilization program in germany
spk_4: these gains were included in our guidance at the beginning of the year but were initially assumed to be more evenly split between the first and second quarters
spk_5: offsetting this we are lapping covert nineteen related temporary benefits in the year ago quarter of approximately forty million dollars excluding these two items we estimate that core ale i grew by around forty percent
spk_2: this excellent performance was led by uk retail sales what a successful holiday trading season and strong operational execution in germany wholesale business
spk_4: we are encouraged by our continued positive friends and looking ahead we expect the international segment to deliver year on year a i group in the second half of twenty twenty three let's now look in more detail at boots uk boots uk sales advanced eleven percent led by continued strength in retail comparable pharmacy sales increase two percent held back by law demand for pulpit nineteen services comparable retail sales advanced sixteen percent which follows on from a twenty two percent calm in the year ago quarter and benefiting from strong execution over the holiday season
spk_2: boots blue market share for the eighth consecutive quarter with games across all categories led by beauty up one point eight percentage points on consumer goods and general merchandise up one point seven percentage points
spk_4: boots dot com sales were up nearly eighty percent first is the equivalent pretty cold period over fifteen percent of our uk retail sales now come from to start come up from approximately nine percent in pre cold it quarter turning next to us healthcare the us healthcare business is rapidly scaling which village employees acquisition of summit help and strong pro forma sales growth of village and the shields and care centrex us healthcare sales exceeded one point six billion dollars compared to five hundred and twenty seven million dollars
spk_5: in the year ago quarter
spk_4: pro forma sales growth was thirty percent village empty delivered sales of over one point one billion dollars advancing thirty percent on a pro forma basis driven by growth that existing clinics expansion of the clinic footprint on summit held group excluding summit village and grew forty eight percent year on year shields continues to deliver with sales of one hundred and twenty five million dollars and increasing forty one percent on a pro forma basis i didn't buy recent contract wins including the addition of treating new health system partners and further expansion of existing partnerships here centric sales were nearly four hundred million dollars with pro forma sales growth of twenty five percent driven primarily by new service offerings with existing partners adjusted es una in the quarter increased by one hundred and seventy seven billion dollars to two hundred and sixty nine million dollars primarily due to the acquisitions of cares and tricks and summer which were not included in the prior year quarter adjusted ebitda was a loss of one hundred and nine billion dollars compared to a lot of sixty two million in the prior year this largely reflects the increased village and the clinic count and higher walgreens help organic investments partly offset by positive contributions from shield and curse and tricks let's now look at some of the key metrics for the us healthcare business a quarter and the walgreens helped organic business had two point nine million contract that lives up over fifty percent year on year as existing pair of partners added a lines of business as was mentioned we've also added horizon blue cross blue shield of new jersey as our fourth peter parker under this agreement we will provide preventative health and wellness services to a select group of horizons medicare and commercial members these services will be available at walgreens how corners and pharmacies across new jersey starting this summer village empty managed eight hundred and six thousand and value base lives at quarter and reflecting year over year growth of thirty eight percent in the legacy village md business and the additional three hundred nine thousand value base lives from summit
spk_2: the total includes one hundred and seventy seven thousand phone risk medicare lives
spk_4: in a jam the end of the quarter with seven hundred and twenty nine locations including summit help and city md the four hundred and three clinics for the legacy village and the business compared to two hundred and seventy at the end of the prior year period and included two hundred and ten clinics call located with walgreens up from ninety four cold located clinics a year ago we were same benefits on the walgreen side from our partnership with village empty roughly fifty percent of patients at okay to the village empty clinics opt to get their prescription filled at walgreens
spk_5: village md call located sites that have been open for over two years are driving them incremental forking scripts per site per day and this is an increase of thirty five percent versus prior year
spk_2: we will continue to build out or walgreens how corners as we add new lives on purpose we ended the quarter with one hundred and seventeen how corners up from forty seven a year ago
spk_4: in summary we are moving swiftly to implement our vision leverage are integrated best in class assets and are excited with recent developments including finding another pair of partner and a walgreens help organic business
spk_5: turning next to cash flow
spk_4: we generated over one point two billion dollars of operating cash flow in the first half of twenty three would free cash flow of five hundred and sixty million dollars
spk_5: the year over year decline reflected lower earnings due to the covert nineteen headwind and increased capital expenditure is related to growth and they should us
spk_4: this was partially offset by ongoing working capital optimization turning now to guidance we are maintaining our full year adjusted a bs guidance we delivered a solid first have which was broadly on line what expectations or poor retail pharmacy business has perform well in both the us and international as we loved very strong prior your carbs we also drove better than anticipated us conscript drop in the second quarter we continue to expect robust and a center rating abs growth in the second half and have good visibility and strong execution plans against the key drivers colbert was a major headwind in the first off i'm heading into the second half we will see lore year over year and bucks in the us we have clear line of sight the less reimbursement pressure relative to the first half of the year additionally are script volume recovery is progressing and we are benefiting from some favorable cost of goods old timey in the international segment the business as well positioned to extend the second quarter is very good performance and we are moving past the peak investment period for us healthcare
spk_5: covert vaccinations and testing do remain a wild card as the sta has not yet issued guidance on spring boosters
spk_4: in summary at the midpoint of the guidance range we expect second half adjuster dps growth in the mid twenties with that lemming now pass it back to ross for her closing remarks
spk_2: thank you james before we kick off key una let me sum up what you've heard we continue to execute against our fiscal twenty twenty three planned with solid first half result broadly in line with our expectation our retail pharmacy is performing well and we are progressing our healthcare business to scale and profitability we exited the quarter with acceleration in february adding to our confidence in achieving strong growth ahead we have good visibility into the back half drivers as i said earlier the inflection of here are both strategic actions are working and i'm very excited for future now it like to open a line for questions operator
spk_0: at this time or like to remind everyone in order to ask a question press star then the number one on your telephone keypad and your first question comes from a line of adrian rice from credit suisse your line is open
spk_9: i actually they day right they were taken the call obviously it's still early days in the integration of village of day with city md and some it worked out early learning said you stayed positive for our challenges the in the early days of that integration it maybe articulate a little bit whether there's any incremental cash needs did you see up drawing on our walgreens walgreens capabilities as big build up their growth strategy and then maybe the other question i just as quickly would be odd down the front of store sales seems like that's still hanging in there very well as you say eighty any impact either in the us or uk from our the sluggish economic background that sort of hard to see it but i was just as the question
spk_10: tara thank you do this is ross and let me start with your second question about the front in a store and the recession that with the not only in the us that in the uk sell you know first of all the us retail concept for and a half percent and as excluding our test kids really show they were running pretty three wrong right now i'm as you know we've had a lot of work i'm going on with our cars management and that's played for for us secondly the worked we've been doing that private label for we've seen some trade down to private label over a period of time probably about one hundred basis points of improve then our private label business and then i would also you
spk_2: you that we are pretty much the convenient place so gas prices go up where that convenient neighborhood access point
spk_10: and then lastly i would tell you to that in both our us business and the uk business we're seeing our online growth above thirty percent and many of those areas so where you know people are switching over to online optically uk it isn't a deep recession but we're pretty proud of the work that way
spk_2: going on over there and you know good sheathing sixteen can't they wanted the top players over they are selling pretty nicely in personal care and they're over the counter business so we've been fairly resilient we did take some time aj to go back and look at a way to know nine and during that time frame we only maybe about a half of percentage point did
spk_10: and so we think we're pretty resilient at this point but cost improvement has helped us the trend towards private label and are online businesses helping us i'm kind of weather the storm i'm gonna turn it over to john to talk a little bit about the village empty business aj bob thanks for the question i think you were ninety days in two
spk_11: the integration and i think what it is reinforced his the value of the combining you know medicare medicaid maltese push the group professional services an urgent care in our in our in our village senate offering i don't think there's any interest you and i think we're seeing you excess cash needs i think will continue to invest in sensible acquisitions ah but actually what we're what we're seeing is the opportunity to a drive more cost and grow synergies off of kind of a kind of a multi threat of up set of assets that we think you'd be very impactful particulars we concentrate market power with more service offerings in specific markets
spk_0: your next question comes from a line of george hill from deutsche bank your line is open
spk_2: yeah a groin guys thanks for taking the question i guess rose i would conduct the kind of the poor pharmacy business you talk about the acceleration saw in february but it gets cold for the for cool it looks like the company is still need insurance policies i get that is couldn't talk about trends in for quarter and maybe even to the greeted with you can were you seeing in march
spk_12: of and james i can tack on some help keeping questions for you can you talk about the the gains from the cash mobilization program in germany and the that facilities bugs and does that have to be cautious
spk_2: yeah so i can't talk much about marge but i will tell you that you know we thought all a good exit raid am leaving the second quarter february was a stronger month for us then december january so that's any indication in all i would also mentioned here around or script town business we've got a million five hundred stores return to normal operating of hours i might also mentioned to that where we we're seeing improvement in our normal operating stores like six percent there's opportunity as we look at our execution in those doors to go he then to improve the numbers even better so operating you know behind the momentum were getting in our stores that operate well and then i would tell you that we're doing a lot of work in terms of an inventory in our stores and making sure that you know are operational efficiency they're happening every day and our stores that we feel like you know we're moving in the right direction and that respect rig is there anything you want to add on script
spk_11: yet or our desire yeah we bucket it and three different areas as we look at kind of acceleration of are gonna second half the first staff in iowa we talked about quite a bit and improvements were making them staffing forget our stores reopened run thought about operations in stores in those stories that are open are much stronger obviously than those are we're bringing back on mine and were continued to work to of his accelerate the performance of our stores that are at four hours that area that you're going to see his work really hard and new the integration with us healthcare so how do we work with our as of like village md and shield and others to really optimized script script recapture and those types of opportunities so do they infirmary you know the focus really them the execution of operations in our store hours by market the really win back patience and improve our shares i think we have a lot going on the second half of should help us continue the trend
spk_13: yeah i'm bummed towards let me just covered the sale and leaseback of before i do maybe just a bit of context
spk_4: the first of all we believe we delivered a good and long quarter would be some corners with on this gives us the confidence to confirm the for your gardens and it'll just to point out the key studies vps was down twenty five eight and twenty six points is due to cope with as we look at the same on least but the program in the us as could
spk_5: for the didn't incremental you're on your net benefit of three sons on on a full year basis as we said before it will be flat on a full refund year it'll be no incremental benefits of this was kind of time in within the porters the one thing that stands out a little this quarter's coach mobilization program in germany as we harmony as warehouses with an acquisition from my more than twelve months ago and have contributed nine cents of as i mentioned in the in league prepared commons
spk_4: these combine twelve cents were completely offset by other one time type buy items going in a different direction or we have pointed out to a b c
spk_5: say love the stock which cost us five cents you wrong you some with prior your benefits in the uk human relating to covert which was three cents and obviously that we mention for like some awesome burma or the way we look at it we have the same least like twelve cents and on also than twelve cents so we had decent quality yeah
spk_13: the courtroom one time items
spk_5: so you just and summary this gave us the confidence because we're pretty much in line with good quality it gives the confidence to maintain for your guidance
spk_0: your next question comes from a line of elizabeth anderson from evercore here line is open
spk_2: hey guys thanks so much to the question of out the comment a little bit more on the payroll investment a tech that the u s that still sort of tracking towards the five twenty five million that you guys have guided you initially and ears there any kind of reaction abs and the other retailers have moved up to eighteen
spk_12: dollars now it's sort of the if that was something that was ah helpful and and secondly can you talk about with the main drivers arthur stop it or even dies you think that the back half of the or thank you
spk_2: i'll start off with your question on our labors fill in a we continue to make progress a lot of our labor investment came in the former to areas and so am as a reminder we did go to fifteen dollars an hour and that spreading out over a period of time at our hourly rate and then we also made the investment to read game the pharmacy talent in our stores and i'm and it's working for us right now we don't see any advance
spk_10: you know needs in that area to you know to move on labor any further am in a couple of thing that we've
spk_2: learned in this process is you know we're closing the shortage i you know adjusting are pay practices and i'm it's allowing us to return some of our operating hours in there so what i would say to you that you know where that he and his position and don't have plans to take any you know it further increases in that area
spk_13: and then we have you have a question level on some summer
spk_5: know i think we we don't want to get into specific guidance on the on the individual units or what i say as we're looking forward to strong performance at a some of them the buck off what the couple of items as you consider it is one as we have for new businesses the we're not fully in the base so they've got coming on stream that had to acquisitions back at the end of the twenty one
spk_4: you and west mad and least two they're basically in the in the process of squeezing out the revenue on the cost synergies on these two acquisitions
spk_5: very exciting as well they open the lab a new lab at the end of
spk_4: twenty two and this love is the biggest private lab in the us so this is gonna be huge and a big driver of growth and second off and then the final one week they just closed on them acquisition called starling which is quite sizable practice mostly specialty and will contribute heavily to out revenue
spk_5: and he but our growth in the second half i'm the only item we saw with with them
spk_13: with the acquisition as being a on we saw it on our front of store business as well
spk_4: you know as we look at the first quarter the only real negative we saw was in january
spk_5: where we saw a much lower instead the incidence of them of virus cases and this and out the door r o t c business in front of store in the us and we saw a slow down and city md traffic so that was the only item of any kind of note on the negative side
spk_14: on summit
spk_5: an overall the some multi special the business and the primary care physician business is doing really really well and we're very confident in the outlook for the second half
spk_15: a john i don't know the only or the jury to pick your the tube you took all the revenue and profit drivers other good shape
spk_0: your next question comes from a line of charles read from td cowan your line is open
spk_12: oh yeah i think this figure questions
spk_5: you know
spk_12: maybe i know there's been a lot of discussions on the impact of changes the letter chair in our of the scoring coding seen as soon as most try to be time from my she nine editors done and analysis yeah the village and v and somebody regards to this discuss i know that in on a relative basis you know that will stay afloat have the most western
spk_11: so maybe can you mind is what your geographic next locations is generally and a look percent or village in the summer to next is medicare oh thanks for question i think just on a burst on the gf jog geographic reach question we ever a relatively small early stage that of practices in florida so we've got a low exposure there are they gonna risk adjustment and rate changes were obviously looking at that carefully it would be premature to talk about that given the fact of the final rule is it out and we don't know when the final rule happens have that will help health plans l me i'm a side might adjust their benefit designs about but based on the way we are positioned and the the variety of levers we have we're cautiously optimistic that we're in we're in really good shape to manage the the changes that we expect may come down the pike but i think we need to really look at what comes out on april fourth
spk_0: but with regard to florida it's it's the minimis exposure
spk_2: your next question comes from a line of lisa gil from jp morgan your line is open at and say that's good morning and think i just start with house i think about martin and the us retail desert island or you know i've got four days that if i look at at the margin it's quarter and i know there's like ten putting take the attack about growth rates and what's happening like codex that are up at how do we think of out as sustainable march and one and up business and you you have a longer term goal of what you'd like the march and to look like and then just secondly and john i wanted to follow up to your comment on village and the and of you think about capital that relationship that i think that games earlier part about one hundred and seventy seven thousand fully accurate on a lie
spk_16: i've done and i understand but wait for the fourth movie with the potential is there but i'm committed to talk about at been to jail or what you're seeing right now i'm around the profitability of of a day with am a live that we move into that the that capita sharing and and going forward and are there any
spk_12: key
spk_4: things that we should be looking at are thinking about i'm are moving those members to profitability
spk_5: and so the me take a shot of the first one on the margins and i and i think some of this will go back to actually the jp morgan conference where we laid up water the drivers between the first hour on the second half and and the give recall leader that we we did call out for honestly in the us with the pharmacy reimbursement cost of goods sold both of those were expected the be a much lower headwind in the second half of the universe is the first off so i would not judge the first off margins is representative of the for you will be a significant delta between first and second half i'm you asked about longer term how do we see the margins i think
spk_13: henri to you've seen or performance i would say over the last eight quarters
spk_5: it's a business that has grown grown komsomol's and margins at the same time consistently over a long term period we actually think we're still up the the bottom of this of feel like because we still haven't unlocked the power of the walgreens brom as an own label offering and we have goals out there are to be in the low twenties in terms of penetration and we're currently city know sixty and that will continue to underpin margin goat longer term the second part of this is done some nice work on strategic origin management out on promotional effect of listen on select of leader justin priced years with into stores and that is expected to continue to be a lever going forward so we see positive gross margin games longer term on the front of store business which is already well improved over the last eight quarters fantasy is is a is a different animal than the we will continue to have reimbursement pressure i do want to point out a decrease other the conference actually we said that the reimbursement is approximately of twenty twenty three years approximately eighty five percent of the prior year i'm i'm i'm i'm going to pass it over to brigades in a minute the the atmosphere rather than the negotiation process is much more focused now on the how go comes on what value we can bring to bear in terms of reducing overall costs
spk_17: it's less intensely focused on the absolute reimbursement the i'm so we see some changes the dynamics on longer term on for honestly way too early to call any kind of victory but i do want to emphasize that this year as a lower point that you are your in terms of reimbursement pressure on the roster
spk_11: some positive signals going forward to riccardo muti want to provide an input yeah you know james out of give a couple data points as well as the dog by the second half and and i can get back to your first point but believe we have about ninety eight percent of our contracts are accounted for or contractor for county or twenty three and we have good line of sight into reimbursements would that are quite honestly in line with our expectations so for really good about what we're seeing there were always look at improving for german savings increasing volume doing things around firms who services which are obviously offsets into our margin
spk_4: which were gonna see continue in the second half and the other thing as pay for performance contracts you know we're in his editor here in space programs really trying to solve for what our empire you're looking for which is improve outcomes was were dreamed of alluded to there were seeing great improvements in our store performance and how are actually performing against these countries
spk_13: x woodshed obviously come true and paper performance or there are benefits to us as well so elisa by rick brings up a good point i would characterize the second quarter as been especially week in terms of generic procurement savings and will be more strengthen the second half of this we covered and this first our first
spk_18: second half bridge by the to conference
spk_19: advertisement
spk_11: both just lease on on the village question the village model works and we've seen it work with with sober the the the the legacy of businesses in multiple geography is i think what you'll see us do the bless and learn is perhaps concentrate our growth in our investments in specific markets where we can be hyper relevant in a concentrated geography
spk_20: ah but we're confident and we don't see any challenges to the the actual model of what we're delivering for patients in with providers in those markets with the trend the trends are positive of the one thing and i think you'll you'll you'll see us do is really focus or investments to the we can get more of a return on that in specific markets where we can be
spk_0: particularly relevant
spk_21: your next question comes from a line of eric purchase from nephron research your line is open
spk_12: thank you a question on international i'm just trying to sort through a couple of them moving parts here and i think beyond our real estate on and nhs i would love to hear your views on what the underlying businesses running today and
spk_22: a little bit more on where the nhs benefit or detriment sell em que en que to vs second half and expectations per second half normalized growth rates
spk_13: i'm tired you know what we would think that the other a very strong corcoran and the second quarter if you take the real estate on lisa one time in the prior year had some one time benefits it was a true up from the government relating to
spk_5: covert services that we're done and we had some rental contract that we negotiated them didn't pay out last year them were up in these fisher you look at the uk on europe sixteen percent in terms of revenue and loving and twenty two percent so i would say any bird business like and drive teams growth on revenue was an automatic money making machine and an account cons context of of the a uk market that is very for very depressed so where's this coming from it's coming from if you look back pre covert the uk business is actually game two hundred three hundred basis points of share depending on the category so this is it's an execution story and if you look at the top or the top twenty five in the uk together with aldi and lidl boots is the highest performing return or in the uk and that is something if you're a premium retailer so i think we have a strong franchise so looking forward will we have as much of a boost in the forward periods know because we're we're lucky now i'll make one period or we see strong right revenue growth coming out of the retail business continued market shares and margins ability
spk_13: i don't think we will expand margins and in the uk at this point i'm
spk_5: the the looking forward on the uk businesses is one with a fabulous brand franchise
spk_13: strength and a fairly
spk_5: probably the number one player and beauty impersonal carried the uk so on with whether what you would an online presence that we've ended up with fifteen percent penetration on online and i was nine percent covert so it's a much stronger company that was and wrinkle the and we're pretty happy want the future holds
spk_4: it is that is doesn't answer questions and or it
spk_5: that's that perfect in any just on the nhl sorry i missed i missed your nhs piece we didn't see any and hey just i mean or margin shifts between first off i'm sorry the first time on last year and we don't expect any negative going forward however it is fair to say the the the flagship business
spk_4: the uk as or retail business or pharmacy business is constrained by and nhs which sets of limit on overall spending on pharmacy so the prophet pool is not going up lead the way we would have to drive profit in the pharmacy businesses it's not a script business is driving healthcare services so you try
spk_0: don't capture a bigger part of the pool of money that's available by providing value added services to the nhs
spk_9: so that's the ongoing battle that's tough but our services business is growing far faster than the i'm on the base good business in the uk in the uk and your next question comes from a line of just and lakeside wolf research your line is open
spk_17: a more write out a lot and on for just an urgent he's real quick returning to canada store third printing as return to that normalized operate hours they get called out nineteen audrey kind of incremental stores here still targeted i'm wondering kind of underpinned in the for your guy that kids learn assumption that you guys clear for the rest of those are sort of a target number by year end to sort of return and you feel like the level of investment as points adequate there in opening need to revisit that
spk_11: yeah regular to take them yeah and so the night hundred is worrying came out of fact you do obviously we've continue to make progress as we started and to do trees well i think as you look at the second half yoda we have to understand kind of the accident rate for the year on a store
spk_5: short hours with don't believe we're going to get through all of the stores by the end of year and and so i would say that the expectation should be that we will still have a subset of stores that are still short and pharmacy hours we also have to take a look market by market the really understand dynamics of hours with in those markets so that we could also
spk_4: the make adjustments hours as necessary based off of what's happening with competition and those that locales as well so the primary focus is still to get pharmacists hired to reopen our stores by we do believe given the current trends and what's happened throughout the first have the your that we will have a subset of our scores are still on short now as exit in here
spk_23: but i but i think we are feeling pretty good about the stores that have been reopened them stores currently without on a young restrictions or wrong or hobby in the regional six percent growth and we may actually see some opportunity to the because
spk_2: we are looking up operational improvements much as i'm restoring the store hours but how you actually operate within the pharmacy and engage with them asians and we probably will not we will roll those out across the entire portfolio as opposed to the stores that are
spk_10: on open
spk_24: also to let me just add on village in the what we're saying with our script said village and so on are call located sites that have been open for more than two years were driving an incremental for forty scripts per site per day and this is an increase of about thirty five percent versus prior years so when we began to
spk_25: look at our script isn't it is three areas it's they return to a store hours the second piece is better execution in the stores and the third is to begin to drive our relationships from our acquisition partners both the work that we can do with shields of most importantly with our village call okay to clinics and your next question comes from a line of aaron right from morgan stanley your line is open hey thanks i'm on capital to the point that hear how are you wayne a priority now and how are you thinking about for the rationalization a certain investment businesses particularly the and and what's your commitment
spk_13: the for business now and and are you keeping your options open and i just stuck it more the housekeeping question but are there any changes from a segment level guidance perspective that we should be thinking about for the second half and and anything we speak and good route and terms the third quarter versus fourth quarter anything above or below the line that may have change relatives here initial thinking for instance tax rate
spk_5: maybe i'll cover the last question first in a way i do want to emphasize the the way we look at this as we delivered a good decent quality inline line quarter and gave us the confidence to come from the for your guidance the law was be put some takes in a business like this and we covered some of these in a we have general our performance across the retail business and we have covert that's a bit of will watch out so we kind of balance all of these and say it's not the moment to go up and change specific guidance on the parts of the business
spk_13: so we're we're pretty comfortable right now we still out a consensus which i think is at for fifty one
spk_4: we're pretty comfortable with worried that city
spk_5: many of the factors that are positive or negative for that case where we can play one off against the are so that's our confidence on this you asked about the big the call up the sequence of the quarters if you were plotting out you know we've been quite of friends and we expect mid twenties i would say the growth rate is higher in the fourth quarter them this the third as we cycled through some of the negative factors of them we implement the positive ones but we're pretty comfortable with the overall profile
spk_2: capital allocation or or priority right now is that an oldie tracking tack on acquisitions would they would be small in size and only focus on the anchor business
spk_5: and then the other question on boots which i guess i'm rusty want to take that one on food is your still on the boots business you know we've we've been pleased with their performances jan talked about in comparison to you as business or healthcare business what we feel like we've got a balance business here and terms of what we're seeing in boots and they are contained take market share and you know it's a business that is a nice to have his and complimentary and and you know until further notice you know it's it's a good business for us to have yeah new you will have seen them or i'm in the quarter that we did dispose just after the quarter with disposed of a fairly large portion of option to now that we've taken our steak below ten percent of the get sick something
spk_0: i'm so we're not we're still making progress against all of the portfolio simplification goals we've we've taken action like on parts of the bc option for is now down to six range the you know so were were carefully assessing when the right moment those on all of
spk_2: these vehicles on simplification of the company to ensure that we have the firepower to drive and create a successful healthcare services business that's the goal and us to strategy logic was laid out on more resolute and driving against the strategy and we have reached the end of our question and answer session ms raspberry i turned the call back overdue for some final closing remarks thanks so thanks everyone for joining us let me sum up what you heard today to go in the queue and a portion so just in short you know the us we've really achieved a balance reform and or core retail sales are up mid single digits better than expected sequential improvement in our comp script and then it internationally boots is delivered a eight consecutive quarters with strong cop performance which accelerated to sixteen percent this quarter so we felt really good about of leaving this quarter so you know when we talk about what are we thinking about recession inflation our business is not only strong that is showing resiliency we've been able to absorb various industry wide shock such as writing labor costs and the inflationary pressure so the same time though we're moving beyond our peak in this and period and healthcare and we've turned the corner on camping last year's koba demand so that's what we're referencing in terms of in inflection point i'm really happy about this team they're clearly executing against are planned and is showing up in the results we've achieved in a really solid first half performance and broadly in line with their expectations
spk_0: the investments that you all have been tracking very carefully they are accelerating and they're building out our healthcare growth engine as we designed and planned and then the portfolio simplification is working in it's unlocking the value that we need and funding our transformation so i would just
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