Walgreens Boots Alliance, Inc (NASDAQ:WBA) Q3 2019 Earnings Conference Call June 27, 2019 8:30 AM ET
Walgreens Boots Alliance，Inc（纳斯达克股票代码：[WBA]）2019年第3季度收益电话会议2019年6月27日美国东部时间上午8:30
Gerald Gradwell - Senior Vice President, Investor Relations
Stefano Pessina - Executive Vice Chairman & Chief Executive Officer
James Kehoe - Global Chief Financial Officer
Alex Gourlay - Co-Chief Operating Officer & President, Walgreens
- Gerald Gradwell - 投资者关系高级副总裁
- Stefano Pessina - 执行副主席兼首席执行官
- James Kehoe - 全球首席财务官
- Alex Gourlay - Walgreens的联席首席运营官兼总裁
Steven Valiquette - Barclays
Robert Jones - Goldman Sachs
Eugene Kim - Wolfe Research
Ricky Goldwasser - Morgan Stanley
Eric Percher - Nephron Research
Elizabeth Anderson - Evercore
Glen Santangelo - Guggenheim
Michael Cherny - Bank of America
- Steven Valiquette - 巴克莱
- 罗伯特琼斯 - 高盛
- Eugene Kim - Wolfe Research
- Ricky Goldwasser - 摩根士丹利
- Eric Percher - Nephron Research
- 伊丽莎白安德森 - 永恒
- Glen Santangelo - 古根海姆
- Michael Cherny - 美国银行
Good morning. My name is Jessa and I will be your conference operator today. At this time, I would like to welcome everyone to the Walgreens Boots Alliance Inc. Third Quarter 2019 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.
Mr. Gerald Gradwell, you may begin your conference.
早上好。 我叫Jessa，今天我将成为您的会议运营商。 在这个时候，我想欢迎大家参加Walgreens Boots Alliance Inc. 2019年第三季度收益电话会议。 所有线路都已静音以防止任何背景噪音。 发言者发言后，将会有一个问答环节。 [操作员说明]谢谢。
Good morning, ladies and gentlemen, and welcome to our third quarter earnings call. I am here today with Stefano Pessina, our Executive Vice Chairman and Chief Executive Officer of Walgreens Boots Alliance; James Kehoe, our Global Chief Financial Officer; and Alex Gourlay, Co-Chief Operating Officer of Walgreens Boots Alliance and President of Walgreens.
Before I hand you over to Stefano to make some opening comments, I will, as usual, take you through the legal safe harbor and cautionary declarations. Certain statements and projections of future results made in this presentation constitute forward-looking statements that are based on our current market competitive and regulatory expectations and are subject to risks and uncertainties that could cause actual results to vary materially.
Except to the extent required by the law, we undertake no obligation to update publicly any forward-looking statements after this presentation, whether as a result of new information, future events, changes in assumptions, or otherwise. Please see our latest Form 10-K and 10-Q for a discussion of risk factors as they relate to forward-looking statements.
In today's presentation, we will use certain non-GAAP financial measures. We refer you to the appendix in the presentation materials available on our Investor Relations website for reconciliations to the most directly comparable GAAP financial measures and related information. You will find a link to the webcast on our investor relations website at investor.walgreensbootsalliance.com. After the call, this presentation and webcast will be archived on the website for 12 months.
I will now hand you over to Stefano.
女士们，先生们，早上好，欢迎来到我们第三季度的财报电话会议。今天我和Walgreens Boots Alliance的执行副主席兼首席执行官Stefano Pessina在这里; James Kehoe，我们的全球首席财务官;和Walgreens Boots Alliance联合首席运营官兼Walgreens总裁Alex Gourlay。
Thank you, Gerald, and hello, everyone. After what was a very disappointing second quarter for us, it is pleasing to be able to report that this quarter has been broadly in line with our expectations. That said, the pressures we have seen for sometimes continue to impact our businesses and we still have a lot to do to deliver the transformation that will allow us to get ahead of the market trends again and return our company to strong and consistent growth.
We were clear that the action we were undertaking to address the market changes take time and the impact will therefore not fully be reflected in our financial performance until future financial years. But we have been working hard to accelerate our plans and program.
I have repeatedly said that we have, within our company, the skills and the assets we need to address the challenges that we face as our markets evolve and transform. Last quarter, we told you that we would focus on accelerating the work we are doing to transform our company. We are doing that.
The Transformational Cost Management Program that we began early this year is one of the underlying foundations of the changes that we need to make. Most importantly, this program will help drive a structural change in the company, making us a more efficient, more agile and more responsive organization.
It is expected to provide a significant portion of the funding required for our major technology upgrade and development investments. And, of course, an element of it will help to give us a bridge in our financial performance, as we restructure our businesses to better meet the needs of an ever more rapidly changing market.
James and Alex will address some of these points, as they talk you through the quarter, which I will ask them to do now. James?
Thank you, Stefano, and good morning, everyone. Third quarter adjusted EPS was $1.47, a constant currency decline of 2.4% versus prior year. The results were slightly ahead of our expectations and included some timing benefits from the fourth quarter. Overall, we are tracking well against our strategic goals.
We are quite encouraged by U.S. comp sales, which were exactly what we needed to deliver to stay on track to meet our full year expectations. And while it is still early days, our Transformational Cost Management Program is very much on track and accelerating. Based on our performance in the quarter, we are reaffirming our full year adjusted EPS guidance. We continue to expect the year to be roughly flat on a constant currency basis.
Let's now look in more detail at the numbers. In the third quarter, sales increased 0.7%. On a constant currency basis, sales were up 2.9%, mainly due to growth in Retail Pharmacy USA and the strong performance from our Pharmaceutical Wholesale division.
Adjusted operating income declined 11.7%, or 10.4% on a constant currency basis. This was mainly due to lower pharmacy margins and a decline in front of store sales in the U.S. and lower results in Boots UK. Adjusted EPS declined 4% to $1.47, a decrease of 2.4% on a constant currency basis. This includes a 5.8 percentage point contribution from our share repurchase program.
GAAP operating income declined 24.7%, including $86 million of expenses related to the implementation of our Transformational Cost Management Program and $115 million relating to our share of AmerisourceBergen's impairment of PharMEDium. In total, these adjustments account for more than 50% of the year-on-year decline. GAAP EPS declined 16.5% to $1.13 per share.
Year-to-date sales increased 4.9%, including a currency headwind of 1.9%. On a constant currency basis, year-to-date sales were up 6.8%, reflecting 7.7% growth in Retail Pharmacy USA and 8% growth in Pharmaceutical Wholesale. Adjusted operating income declined 8.9% or 7.8% on a constant currency basis. This was more than offset by a 4.8 percentage point contribution from share repurchases and 3.2% from tax, contributing to an increase in adjusted EPS, which was up 1.6% on a constant currency basis.
Now let's look at the performance of our divisions, starting with Retail Pharmacy USA. Sales increased 2.3% in the quarter, mainly due to pharmacy brand inflation and pharmacy script growth. Organic sales increased 2.9%. Adjusted gross profit declined 3.9% and gross margin declined 140 basis points, mostly due to pharmacy.
Adjusted SG&A spend decreased 0.7%. And adjusted SG&A was 17.3% of sales, an improvement of 0.5 percentage point compared to the year ago quarter. Adjusted operating income declined 13.8% in the quarter, procurement savings, pharmacy script growth and continued SG&A savings were not enough to offset reimbursement pressure and the lower front of store sales. These results also included store and labor investments of $40 million in the quarter, equivalent to approximately 270 basis points of adjusted operating income.
Now let's look in more detail at pharmacy. Total pharmacy sales increased 4.3%, reflecting higher brand inflation, prescription volume growth and a strong growth in central specialty, which grew 8.6% year-on-year. Comp pharmacy sales increased 6% and comp prescriptions grew 4.7% in the quarter, a strong improvement on the first half growth of 1.9%.
Market share was 21.2% in the quarter, down 50 basis points versus prior year, due entirely to our store optimization program. Pharmacy gross profit declined versus prior year, as script growth was more than offset by lower gross margin. Gross margin was around 150 basis points lower than last year, due to continued reimbursement pressure, adverse mix associated with brand inflation, and a 50 basis point impact due to the faster growing specialty business. These impacts were partially offset by procurement savings. The key to offsetting long-term reimbursement pressure is, building scale, driving efficiency and creating a sizable health care services business.
Turning next to our U.S. Retail business. Total retail sales decreased 2.9% and were negatively impacted by our store optimization program. Comp retail sales declined 1.1%, an improvement on the first half comp decline of 3.5%. Tobacco accounted for 150 basis points of the comp sales decline, but we did benefit from a 65 basis point tailwind as a result of the cough cold and flu season.
Retail gross profit declined mostly due to lower sales, which as I mentioned earlier, were negatively impacted by our store optimization program. Gross margin was down slightly by 20 basis points, an improving trend versus the second quarter, as we rebalanced our promotional mix. We expect to see a continued improvement in gross margin trends in the fourth quarter.
Turning next to Retail Pharmacy International. As usual, I'll talk to constant currency numbers. Total sales declined 1.6%, mainly due to a 1% decline in Boots U.K. in a challenging market. Boots U.K. comp pharmacy sales increased 0.8%, reflecting prescription growth in the quarter. Whereas comp retail sales declined 2.6%, as we continued to gain share in a weak market.
Our beauty reinvention is now in place in 26 stores, and we remain on track to introduce 25 new brands in 2019. Adjusted operating income was down 10.5% due to weak retail sales and lower pharmacy margins in the U.K. Our U.K. pharmacy business was impacted by temporary industry-wide NHS underfunding and higher generic pricing. These impacts were only partially offset by prescription volume growth. We are taking actions to address our U.K. cost base, and I will cover these a little later.
Turning now to the Pharmaceutical Wholesale division, which I'll also discuss in constant currency. The division delivered another strong quarter with sales up 8.3%, led by emerging markets. Our U.K. performance was aided in part by a customer contract change mentioned last quarter, which contributed 2.3% to revenue growth. Adjusted operating income increased 9.4%, reflecting strong gains in Turkey and solid results from our European business.
Turning next to cash flow. Operating cash flow was $3.2 billion for the first nine months of the year. Free cash flow was $2 billion. Operating cash flow was impacted by headwinds of around $1.4 billion. We are lapping a one-time prior year of working capital benefit of $502 million, cash tax payments are $395 million higher, mainly as a result of U.S. tax reform.
This year includes legal settlements of $276 million. And we have $200 million of cash costs relating to the ongoing Rite Aid store optimization and integration, and the transformational cost management program. Underlying working capital increased approximately $500 million, primarily due to higher sales.
Cash capital investment was $1.2 billion for the first nine months, $264 million higher than the prior year. This was due mostly for the impact of the Rite Aid store conversions.
Turning now to our Transformational Cost Management Program. We remain on target to deliver $1.5 billion in annual cost savings by fiscal 2022. Our smart spending benchmarking is complete, targets and execution plans are setup, and we're accelerating a wide-ranging program to reduce pharmacy cost to fill. The 20% headcount reduction at our Boots U.K. headquarters and the reorganization of our U.S. fuel supervision structure are now complete.
On digitalization, our Microsoft cloud migration is moving at pace, and we have now started working on optimizing our many IT vendors. Work has also began on building out compelling consumer-value propositions. Given the difficult market conditions in the U.K., we have completed the review of our store portfolio, and have started a store optimization program that will impact around 200 locations over the course of the next 18 months.
Many of these 200 stores are loss making, and approximately two-thirds of them are within walking distance of another Boots store. While the stores we plan to close represent around 8% of our store base, we expect the revenue impact will be around 1%. We do not expect a significant impact on colleagues, as we plan to redeploy to nearby stores. We are also reviewing our real estate footprint in the U.S. and accelerating the pace of change, especially in our U.S. supply chain. More to follow in the coming months, as we work through these key opportunities.
Turning to guidance. As I mentioned earlier, the third quarter was slightly ahead of our expectations aided by some timing benefits. As a result, we are reaffirming our full year guidance, and we expect adjusted EPS to be roughly flat on a constant currency basis.
As a reminder, last quarter we told you to expect a range of plus or minus 2%. Given the normal level of volatility in a business of this size, we feel this range is still appropriate. Let me just give you a couple of assumptions. As you update your models, you should now be building in $0.06 of negative currency impacts, and this is $0.02 worse than our prior guidance.
We continue to project full year share repurchases of $3.8 billion, contributing 4.8 percentage points to adjusted EPS growth. And, we now project a full year adjusted effective tax rate of around 15.5%, compared to our earlier guidance of 16% to 17%. The lower rate reflects nonrecurring discrete benefits and changes to our geographic mix.
When we provided our original fiscal 2019 guidance, we highlighted incremental store and labor investments of around $150 million. As we accelerate the pace of our digital investments, we now expect total incremental spend of approximately $175 million with a significant portion of the additional spend coming in the fourth quarter.
Let me finish by highlighting the change in revenue trends coming from Rite Aid. We saw positive revenue contributions from the Rite Aid acquisition in the first two quarters of the year. From this quarter on, Rite Aid is actually a headwind to reported revenue due to the ongoing store optimization program.
I'll now hand you over to Alex, and he will update you on some of the business initiatives we have underway in the U.S.
让我先强调一下来自Rite Aid的收入趋势变化。 我们看到今年前两个季度Rite Aid收购带来的正收入贡献。 从本季开始，由于正在进行的商店优化计划，Rite Aid实际上是报告收入的逆风。
Thank you, James, and hello, everyone. During the quarter, we continue to make progress in our four strategic priorities; accelerating digitalization, transforming and restructuring our retail offering, creating a neighborhood health destination around a more modern pharmacy, and rolling out our Transformational Cost Management program.
We'll also continuing to develop our omni-channel offering. Our Walgreens app has now been downloaded 57.3 million times, up 10.5% since last year. Around 26% of Walgreens retail refill scripts were initiated through digital channels in the quarter, up 18.4% since last year, and also increased our active Balance Rewards members to 90.2 million.
In Retail, our leading beauty brands No7 performed exceptionally well in the quarter. In Walgreens, sales of No7 were up by over 50% helped by the launch and advertising of the No7 Laboratories Line Correcting Booster Serum and our other retail partners saw significant growth.
In addition to beauty, we're working on refreshing our own brand portfolio in Walgreens to drive sales and improve the customer value proposition. During the past two years over 60% of the Walgreens own brand product portfolio has been re-launched or rebranded enhancing the customer offer through better value and quality to deliver improvements in sales and margin. This work is ongoing.
Rite Aid is very much on track. Against our store optimization program we've completed 631 of the planned 750 stores closures and we continue to see good customer retention.
As to the many Walgreens own ready stores, 394 have been successfully converted to Walgreens and we expect to complete the Rite Aid integration by the end of fiscal year 2020.
We've taken further steps to develop our neighborhood health destinations, working with our partners including LabCorp and Humana and as we announced during the quarter VillageMD. With VillageMD we will be opening five state-of-the-art primary care clinics in the eastern area by the end of the year branded Village Medical at Walgreens.
We also remain on track to open 125 LabCorp outlets at Walgreens stores this year. And finally on Kroger the teams are working well together and so far the initial customer response has been positive.
I'll now hand you back to Stefano.
在零售方面，我们领先的美容品牌No7在本季度表现出色。在Walgreens，No7 Laboratories Line Correcting Booster Serum的推出和广告推动了No7的销量增长了50％以上，而我们的其他零售合作伙伴也实现了显着的增长。
我们已经采取进一步措施来开发我们的社区健康目的地，与我们的合作伙伴包括LabCorp和Humana以及我们在本季度VillageMD期间宣布。在VillageMD，我们将在年底前在东部地区开设五家最先进的初级保健诊所，名为Village Medical at Walgreens。
Thank you, Alex. So as you have heard we have already delivered what we expected. But we have a lot of work ahead to get the business growing again. We have been working hard to initiate or accelerate the changes we need to keep us in line with or leading the market.
We are investing heavily in updating our systems and the infrastructure, creating efficiencies and capabilities, which will give us scope of development for many years to come.
We are developing new ways to engage with our customers, introducing new services and products through new channels. We are working with partners who bring us the skills, resources, scale and expertise that complement our own to accelerate our development give us access to new thinking market and allow us to create significant new income streams.
At the same time, we are continuing our focus on transforming our traditional areas of business but rest the challenges of our core markets. Economic and reimbursement pressures have long been and remain a fact of life for us. Over the years we have developed values at different levels to mitigate the impact of this pressure.
In recent years, a major element of this mitigation has been improvement in generic procurement, made possible by changes in the global generics manufacturing sector, ongoing patent expires and significant development in the actual procurement process, all of which have led to continued improvement in buying terms.
These buying benefits have enabled us to compensate for the significant demand made on us by payers. As we have made clear, the level to which we can mitigate current and future reimbursement pressure toward generic procurement has reduced, although it will continue to be an important lever for many years to come.
Recognizing this we are accelerating other levers to mitigate the pressures. We have more to do to cost saving and efficiency and we expect consistent savings well into the future. There is no doubt that over time we also have to build a range of services and service level that drive benefits for our payer partners.
We believe that the future of pharmacy is aligned to a wider range of health care services provided efficiently and conveniently in a community setting. This is why we are exploring partnerships with a wide range of innovative expert in various fields, allowing us to offer a better service more effectively and at a lower cost to offset than we would be able to do if we had set these services up on our own or paid a significant premium for them. Of course, many of the services are still being tested or are still in development.
Let me clear, however, while the number of partnership we are piloting has the potential to have a meaningful impact on our business, no single one of these will define or frame our future. In truth it will be a combination of products and services, working together in the convenience of a community pharmacy that will forward the basis of our future customer proposition. The mixture of products and services will inevitably bring together a range of complex and differentiated business models. Their economics will be least impact based on changes to individual's health condition management and over all wellbeing over many years.
The consequence of getting these services right has a huge potential benefit for us for our partners and for our customers. But if we rush into them without truly understanding the operational or financial model, we have the risk of wasting an extraordinary amount of time, resources and more. We might be sure of what we are doing before we enter into these businesses in scale.
Today many people are looking at our company indeed at our sector, focused on the immediate risk they perceive us to face. And I understand this; we are far from complacent about the pressures we face.
However, we can see the inherent strength of our business. There is an ever increasing demand for effective, efficient and convenient support for people to manage their health conditions while leading productive and fulfilling lives in their local communities. The unique positioning of community pharmacy and our place in the sector gives us practical and financial scale, reach and strength.
It gives us a robust platform, on which to evolve and transform our company to meet the ever changing needs of the markets we serve. And it gives us a fantastic foundation from, which to deliver innovation, growth and value for our customers and our shareholders for many years to come.
Thank you. Now we will take your questions.
Thank you. [Operator Instructions] Your first question comes from the line of Steven Valiquette from Barclays. Please go ahead.
谢谢。 [操作员说明]您的第一个问题来自巴克莱的Steven Valiquette。 请继续。
Great. Thanks. Good morning, Stefano and James. Thanks for taking the question. So, as the U.S. Retail Pharmacy business remains difficult really for all types of stores and operators across the entire industry, we're getting the sense that there could be an additional opportunity among the larger mass merchandisers in the U.S. for a store-within-a-store deal where a Walgreens or a CDS could take over the pharmacies within a specific large U.S. mass merchandiser.
So I'm just curious to hear about your current appetite for an opportunity like this right now in the U.S. given the simultaneous store rationalization program that you're going through right now and also your other initiatives in the U.S.? Thanks.
非常好。 谢谢。 早上好，斯特凡诺和詹姆斯。 谢谢你提出这个问题。 因此，由于美国零售药房业务对整个行业的所有类型的商店和运营商来说仍然很困难，我们感觉到美国大型商户可能会有额外的机会在店内进行 一家商店的交易，Walgreens或CDS可以接管特定大型美国大型商品店内的药店。
Hi, Steve its Alex here. One of our strategies clearly there is to grow volume and to make our business bigger to get scale. So we -- and also partnership is really important to us as we've said many, many times. So with the market changes and these changes are really -- you can see the number of pharmacies in the U.S. is in decline as measured for the first time for a long time.
We are obviously open to partnership in this area. We bring scale, we bring expertise and we're investing as Stefano said in his remarks and Jim said in pharmacy and the pharma supply chain. So we're open. And, of course, we’ll look for every opportunity available providing a mix that makes sense for us our partners and increase the quality of our business.
嗨，史蒂夫的Alex在这里。 我们的策略之一显然是增加产量并使我们的业务规模扩大。 所以我们 - 以及伙伴关系对我们来说非常重要，因为我们已经多次说了很多次。 因此，随着市场变化和这些变化确实如此 - 您可以看到美国的药店数量长期以来第一次出现下降。
我们显然愿意在这方面建立伙伴关系。 我们带来了规模，我们带来了专业知识，我们正在投资Stefano在他的言论中说，Jim在药房和制药供应链中说。 所以我们是开放的。 当然，我们会寻找每一个可用的机会，为我们的合作伙伴提供合理的组合，并提高我们的业务质量。
Okay. Just one other quick one. As we think about the narrow network opportunities for calendar 2020. Just curious if you could see the potential for meaningful market share shifts for 2020 among the large retail pharmacies like yourself given the level of RFP activity? Or do you think it's going to be a quieter year for calendar 2020 just in terms of narrow network opportunities and potential market shifts within the marketplace?
好的。 只是另外一个快速的。 当我们考虑到2020年日历的狭窄网络机会时。如果你能看到像你这样的大型零售药店在RFP活动水平上看到2020年有意义的市场份额变化的潜力，那就好奇了吗？ 或者您认为，就市场狭窄的网络机会和市场潜在的市场变化而言，2020年日历将更安静一年？
Hi, Steve, it's Alex again. We think it's probably more normal. Again, we've laid out our plans in terms of the heightened growth that we expect. And we think it's a more normal year. Now of course, within that there is always opportunities and there is always challenges, but we think it's a probably more normal year than 2020.
嗨，史蒂夫，再次是Alex。 我们认为这可能更正常。 同样，我们已根据我们预期的高增长计划了我们的计划。 我们认为这是一个更正常的一年。 当然，当然，总有机遇，总是存在挑战，但我们认为这可能比2020年更为正常。
Okay. Got you.
Your next question comes from the line of Robert Jones from Goldman Sachs. Please go ahead.
Great. Thanks for the questions. James, you mentioned that the results included some timing benefits from the fourth quarter. I was just curious, if you could share the source of those benefits and anything on the size of those benefits would be helpful?
非常好。 谢谢你的问题。 詹姆斯，你提到结果包括第四季度的一些时间收益。 我只是很好奇，如果你可以分享这些福利的来源，那么这些福利的大小会有所帮助吗？
Okay. Yes. Roughly the -- we had two impacts in the quarter. One was timing. And I would say that's around $0.03 or $35 million is our best estimate. And the other one is whereas we also highlighted in the comments, we're ramping up the amount of spending in store labor and now digital and development expense. So we've increased the spending on the full year by 150 to -- from $150 million to $175 million. There is about a $0.01 of that in the fourth quarter. So think about roughly around $50 million. Around $0.04-ish was it. And when you get to the two timing items, one was $0.02 of the $0.03, but essentially the timing of payer contracts, when you do the compliance and true-up part of you or his outcomes or whether you hit volumes in certain tiers. And that's the normal course of business, but we had expected that in Q4.
And then a $0.01 is coming from expense timing. We accelerated some real estate savings from Q4 into Q3. So it was actually one of the quieter quarters in terms of volatility very few surprises. What's interesting here -- maybe I'll take the opportunity. As you start looking out into Q4, because this takes some income out of Q4. Our Q4 targets is actually quite -- when you start working through it, you start working out your estimates. Bear in mind, we had two large onetime items last year. And on an EPS basis, we're cycling through these.
The first one is you'll recall there was a large true-up, a curtailment benefit relating to retiree medical. That was $110 million. And then in the prior quarter of last year, we made an adjustment for legal cost which was onetime and that was approximately $60 million. So that's another $0.05. So if you think about it, we have a 10 percentage point headwind on EPS in Q4. So we actually -- if you -- when you dissect Q4, we're looking forward to pretty good improving margin trends on the gross margin. And the headwind is all on the overheads and it's all due to onetime items in the prior year.
So I think as you shift through it -- this -- the volatility in Q3 was actually quite low. When you get into Q4, think more that we have two large items last year. So actually, when you analyze the result, the core performance is actually quite -- it's improving quite a bit. I hope that's helped a little bit.
好的，完美的。 然后，当我们进行资本投资时，我的意思是，很明显，我脑海中的一个区域对于你们来说仍然是一个巨大的机会，显然是继续在雪山建造基地区域。 显然，相对于佛蒙特州南部的一些竞争而言，这种情况非常糟糕。 我知道我们之前曾在卡林西亚谈论过可能加入EB-5的酒店。 我必须根据今天在政治上的位置来思考，人们并没有勉强选择启动EB-5产品。
所以我的意思是，除了EB-5的情况之外，您能否就我们如何考虑如何继续在Carinthia Lodge建设并继续发展基地设施方面给我们一些更新。 雪山？...
That's very helpful, James. Thank you. And I guess just one other follow-up. In your prepared remarks, you guys highlighted again that you're reviewing the real estate footprint in the U.S. I'm just wondering if you could elaborate a little bit just your thoughts around, how we should be thinking about the store rationalization. Is this going to be a bigger focus? Or is this kind of just ongoing course of business at this point?
詹姆斯，这非常有帮助。 谢谢。 我想其他一个跟进。 在你准备好的评论中，你们再次强调你正在审查美国的房地产足迹我只是想知道你是否可以详细说明你的想法，我们应该如何思考商店的合理化。 这会成为一个更大的焦点吗？ 或者这是当前正在进行的业务过程？
Hi, Bob, it's Alex here. Yes, it's more ongoing course of business. In a way this is regular. We have over 9,000 drug stores in America. Therefore, things change customers shift opportunities move. We're also thinking about new formats as we spoke before and answered previous questions. So this is just normal business.
嗨，鲍勃，这是亚历克斯。 是的，这是一个更持续的业务过程。 在某种程度上，这是常规的。 我们在美国拥有超过9,000家药店。 因此，事物改变了客户转移机会的举动。 我们也在考虑之前谈过的新格式并回答以前的问题。 所以这只是正常的业务。
And just to add though, the calculations are complex. We have to look at the lease portfolio, it's a store-by-store assessment. And the teams are working through 9,500 stores, which is quite the heavy workload. And we just recently confirmed the 200 stores in the U.K. and moving -- we'll move ahead aggressively on that. And it's quite interesting as you go through it, about 60% of the stores in the U.K. that we're closing lose money. Not all of them, but some of the others are very like the Rite Aid optimization. Where there is -- think of it as a fly by. So we closed two stores, close to each other in the U.K. And sometimes they were a five-minute walking distance and they're transferring over to scripts, but you're taking out fixed cost structure.
So the calculations are quite complex. It's -- you have to assess are you leaving a trading area, which we generally don't like to do. We want to preserve our presence both in the U.K. and in the U.S. And I would highlight that in the U.K., we highlighted in the comments, we're reducing the store count by 8%. The impact on revenue is around 1%. So I don't want to call that rounding. But it has no strategic impact on our ability to maintain our strength of our position in the U.K. I would actually argue on the contrary. It makes us even stronger, because we're a profitable operator in the U.K. market.
而且只是为了补充，计算是复杂的。我们必须看看租赁组合，这是一个逐店评估。而这些团队正在经营9,500家商店，这是相当繁重的工作量。我们最近刚刚确认了英国的200家商店并且正在移动 - 我们将积极推进这项工作。当你经历它时非常有趣，英国大约60％的商店我们正在关闭亏本。不是全部，但其他一些非常像Rite Aid优化。哪里有 - 把它想象成一只苍蝇。所以我们在英国关闭了两家商店，彼此靠近。有时它们是五分钟的步行距离，他们正在转移到脚本，但你正在采取固定的成本结构。
所以计算非常复杂。这是 - 你必须评估你是否离开了一个我们通常不喜欢的交易区域。我们希望保持我们在英国和美国的存在。我要强调的是，在英国，我们在评论中强调，我们将商店数量减少了8％。对收入的影响约为1％。所以我不想称之为四舍五入。但它对我们维持英国在英国的地位的能力没有任何战略影响。我实际上会反驳。它使我们更加强大，因为我们在英国市场上是一个有利可图的运营商。
Great. Thanks for all that.
Your next question comes from the line of Justin Lake from Wolfe Research. Please go ahead.
你的下一个问题来自Wolfe Research的Justin Lake系列。 请继续。
Hi. This is Eugene dialed in for Justin. Quick question on the U.S. pharmacy gross margin. It decline 150 basis points year-over-year, if we read it correctly. And it seems like Q3 was a clean quarter to compare year-over-year, because FEP specialty contract lapped. How do we should think about -- how should we think about this going forward? Is this a rate of decline in the near term that we can -- that we should consider?
你好。 这是尤金为贾斯汀拨打的电话。 关于美国药房毛利率的快速提问。 如果我们正确地阅读它，它将逐年下降150个基点。 由于FEP专业合同的重复，Q3似乎与去年同期相比是一个干净的季度。 我们该如何思考 - 我们应该如何思考这一点？ 这是我们能够在短期内下降的速度 - 我们应该考虑吗？
I'll take a shot on that. And I'll ask Alex to weigh in afterwards. I think the -- we cycle through the FEP contracts, the specialty business growing at 8.6%. We would expect that always to grow at faster than the core business. So we'll always be somewhat dilutive to margins.
One other thing there is other dynamics in the quarter. So in the quarter, we sold more branded and the margin on branded is lower than it is on generic and that creates a mix impact as well. And that's as significant as any other impact. And the problem is, we can't project with accuracy, the individual mix in any single quarter. But if you take out a lot of these mix items, the core reimbursement net of procurement and other mitigations was actually a pretty solid quarter.
We do expect some improvement in both retail and gross margin – sorry, retail and pharmacy gross margins in Q4. That's as far as we're willing to go. So this is not something you should take and extrapolate out as 150 basis points on pharmacy. We do expect some improvements in the trend in Q4. But mix and everything else plays into it, it would be a very long discussion. Alex?
我会考虑一下。然后我会请亚历克斯继续权衡。我认为 - 我们循环通过FEP合同，专业业务增长8.6％。我们期望总是以比核心业务更快的速度增长。所以我们总是对利润有点稀释。
我们预计零售和毛利率都会有所改善 - 对不起，零售和药房毛利率在第四季度。就我们愿意而言。所以这不是你应该采取的，并在药房推断为150个基点。我们预计第四季度趋势会有所改善。但混合和其他一切都在其中，这将是一个非常长的讨论。亚历克斯？
Yes. I think in terms of how we feel about margin going forward, we've always stated we recognize reimbursement pressures there and we'll stay there and that's how do we compensate for it. And as James has just said, we are seeing the ability to compensating more in Q4 than Q3 as the trends compare. I think in particular, a couple of areas, which are just interesting going forward. First of all, we are getting paid more for I would say value-based contracts, particularly in Medicare D. So we're starting to hit some of the performance targets, which is encouraging. And I think also, we continue to have the opportunity to work differently in some networks.
For example, again, I would point to the prime contract, we did some time ago, where we have a different approach to marketplace, where we're really much more transparent. And again, that process we believe is -- will become more I say -- I will say available to the market going forward that has been in the past. So it's -- if the reimbursement doesn't go away, the margin is under pressure as we've often said. But we continue to be innovative, we work creatively and we work hard on new levers as well as the old levers that we've spoken about a lot.
例如，我再次指出主要合同，我们之前做过的，我们采用不同的市场方法，在那里我们更加透明。而且，我们相信的那个过程将会变得越来越多 - 我会说过去一直在向市场推出。所以，如果报销没有消失，我们经常说，保证金面临压力。但我们仍然是创新的，我们创造性地工作，我们努力工作新的杠杆以及我们已经谈过很多的旧杠杆。
Yes. I mean, any comments we make on the Q4 margins, these are obviously all factored into our full year guidance. We're just giving you the perspective that we had a tough Q2 on reimbursement, which was one of the highest numbers in history. Q3 was a tough quarter as well. We will -- as we said in the previous call, we will start to see an improving trend in Q4 on the gross margin side, but the caution is to call out those two large onetime items that are putting pressure on overheads. And the good news on that is they don't repeat in the future. It's just impacting Q4.
是。 我的意思是，我们对第四季度利润做出的任何评论，显然都是我们全年指导中的因素。 我们只是给你一个观点，即我们在报销方面遇到了艰难的第二季度，这是历史上最高的数字之一。 第三季度也是一个艰难的季度。 我们将 - 正如我们在上一次调用中所说的那样，我们将开始看到第四季度毛利率方面的改善趋势，但谨慎的是要说出那两个对开销施加压力的大型一次性项目。 而关于这一点的好消息是他们将来不再重复。 这只会影响第四季度。
Got it. Thank you.
Your next question comes from the line of Ricky Goldwasser from Morgan Stanley. Please go ahead.
您的下一个问题来自摩根士丹利的Ricky Goldwasser系列。 请继续。
Yeah. Hi, good morning. Last quarter you directed us to fiscal year 2020 EBIT being moderating up year-over-year and I think flat EPS. Are you still -- with everything you're seeing in the marketplace are you still expecting this?
是啊。 早上好。 上个季度，您指示我们到2020财年息税前利润同比逐年放缓，我认为平均每股盈利。 你还在吗 - 你在市场上看到的一切都还在期待吗？
Ricky we're going to just comment on current year 2019. We don't want to get into a practice of going back to discussing long-term models or 2020 guidance. What we will be doing is in the next conference call, we will give comprehensive guidance on all of the assumptions around 2020. So, we're not going back to a discussion on the -- we just refer people back to the previous material that we placed out there in Q2.
Ricky我们将对2019年的当前年度发表评论。我们不想进入讨论长期模型或2020年指导的做法。 我们将要做的是在下一次电话会议中，我们将对2020年左右的所有假设给出全面的指导。因此，我们不会再回过头来讨论 - 我们只是将人们引回到以前的材料中 我们在第二季度安排了那里。
Okay. And then just a follow-up. In the prepared remark when you talked about the review portfolio I think you also said that you're kind of like looking at the U.S. supply chain for additional improvements. Can you then give us a little bit more color on what the opportunity is there? And what are you seeing in terms of generic deflation trends as a headwind?
好的。 然后只是一个后续行动。 在您准备好的评论中，当您谈到评论组合时，我想您也说过，您有点像在寻找美国供应链以获得更多改进。 那么你可以给我们一些关于机会的颜色吗？ 而且你认为通用通货紧缩趋势是一个逆风？
Yes. So, I'll maybe split the -- I think we answered the portfolio question already Ricky so I'll move onto the second question supply chain. I would say we're halfway into our replacement of our core supply chain system from retail in the USA the SAP HANA S/4 software is going into stores and into DCs. So, it's very clear that we now have opportunities with new tools capabilities and data, especially speed of the data we didn't have before.
So, as that goes through we'll give more updates in terms of what that means in terms of projections. But we're encouraged by the progress there but we're only halfway through it.
I think secondly we have just hired as you saw quite recently a very experienced global supply chain. We don't call them Nielsen. And again we're working hard with the team to really understand how to be even more focused on the new capabilities we're building in the business going forward.
I think in terms of generics, as a Stefano said in his pre-prepared remarks, we continue to be very, very pleased with the performance of our WBAD office. And again we see the opportunity going forward to continue to drive values through that WBAD office into a global platform but also into America. So, I think that's how we see the supply chain piece. And -- what was the third part of the question?
是。所以，我可能会分开 - 我想我们已经回答了投资组合问题Ricky所以我将进入第二个问题供应链。我想说，我们已经从美国的零售业取代我们的核心供应链系统，SAP HANA S / 4软件正在进入商店和DC。因此，很明显我们现在有机会获得新的工具功能和数据，特别是我们之前没有的数据速度。
我认为就仿制药来说，正如Stefano在他预先准备好的评论中所说的那样，我们对WBAD办公室的表现仍然非常非常满意。我们再一次看到机会继续通过WBAD办公室推动价值观进入全球平台，同时也进入美国。所以，我认为这就是我们看待供应链的方式。而且 - 问题的第三部分是什么？
The generic deflation.
The generic deflation, yes. I mean we don't see any difference to what's been recorded in the marketplace to be honest. We see this I will say a low single-digit deflation. As they have spoken about we see generics coming off patents in a way that going to describe the others.
And, of course, we pay a lot of attention to this because it has a material impact on our ability to reduce our register cost of goods. And we feel comfortable that all that's captured in the guidance that we gave last quarter.
通用通货紧缩，是的。 我的意思是，我们认为市场上记录的内容没有任何差别。 我们看到这一点，我会说一个低单位数的通货紧缩。 正如他们所说的那样，我们看到仿制药以一种描述其他产品的方式脱离专利。
Yes. And Ricky just to add in the low single digit Alex refers to includes new molecules. If you strip out new molecules the most recent quarter had at least these are our numbers not market numbers. We had -- we saw deflation of around 9%, right. So, it's still up at a healthy clip and that will support continued savings in generic procurement. And this is -- the prior quarter was 9.4%. So, it's still up there in a healthy high single-digit.
Then you were -- the market builds in new molecules. I'm very excited about the supply chain piece here in the U.S. because we now have a team setup looking to shrink so stock office. Whether that's left in-store or at stock office and warehouses. And we're using teams from Microsoft. So, this shows the benefit of the bigger Microsoft agreement. There's data scientists on this who are helping us build data links to understand what is going on and true causes of shrink and how to eliminate it and these are $100 million, $200 million opportunities.
And that's without getting into the working capital side of it. So, I don't want that to be lost. Once we have SAP for Hana in place across the 9,500 stores that stock fill a visibility that we don't have today. Now, we expect significant reductions in the level of inventory required to be held at store levels. So, -- and this is a lot [Technical Difficulty] will be huge. So, you would expect that exiting 2020, we're starting to see material reductions in inventory levels.
是。而Ricky只是在低位数字中添加Alex指的包括新分子。如果剥离新分子，最近一个季度至少有这些是我们的数字而不是市场数字。我们 - 我们看到通货紧缩约9％，对吧。因此，它仍处于健康状态，这将支持通用采购的持续节省。这是 - 前一季度为9.4％。所以，它仍然存在于健康的高单位数。
然后你就是 - 市场建立了新的分子。我对美国的供应链部分感到非常兴奋，因为我们现在有一个团队设置，希望缩小库存。无论是在店内还是在库存办公室和仓库。我们正在使用微软的团队。因此，这显示了更大的微软协议的好处。有关这方面的数据科学家正在帮助我们建立数据链接，以了解正在发生的事情以及缩小的真正原因以及如何消除它们，这些都是1亿美元，2亿美元的机会。
而且没有进入营运资本方面。所以，我不希望它丢失。一旦我们在9,500家商店中使用SAP for Hana，这些库存就会填满我们今天没有的可见性。现在，我们预计在商店层面需要大幅减少库存水平。所以， - 这很多[技术难度]将是巨大的。因此，您预计到2020年退出，我们开始看到库存水平大幅下降。
Your next question comes from the line of Eric Percher from Nephron Research. Please go ahead.
你的下一个问题来自Nephron Research的Eric Percher系列。 请继续。
Thank you. I'd like to dig in on the international performance. And I understand we've seen some of the generic pricing fluctuations, you also made a comment about weakness or a temporary weakness in underfunding. Could you expand on that? And how incremental is it for the pressures that we've already spoken about the last 12 to 18 months?
谢谢。 我想深入了解国际表现。 我知道我们已经看到了一些通用的定价波动，你也对缺乏资金或资金不足的暂时弱点发表了评论。 你能详细谈谈？ 对于过去12到18个月我们已经说过的压力，它有多少增量？
Hi Eric, it's Alex here. Yes. I mean let me start with the last question first which is the underfunding point. The U.K. government pay in a certain way they -- I don't want to go into detail of it but fundamentally it's a market payment for all the pharmacies in the U.K. And if you go into what's called the PSNC website there is more details there about how the how that works. So, we are pretty convinced there's been underfunding in the last period.
Now, of course, working within the pharmacy contractors and the PSNC, we're now debating that with the government in a positive way as our new contracts are put in place. So, that's what we refer to. And of course we can't make any further comments until that negotiation is complete.
But I think in terms of the overall performance of the business. We are making good progress in terms of reinvigorating the Boots model in the U.K. in very difficult times. I don't have to tell you how difficult the marketplace is there. For example, this morning, we opened a fantastic new store, a new concept store in Covent Garden that was skewed around the corner. And this is a health, wellness, and beauty concept store which will not only feed the future of Boots, but could also of course give us some great ideas for U.S. market as well.
On top of that we've done a lot of digitalization. We've digitalized the Advantage card which is still the most popular card in the U.K. by some way in terms of beauty and treat cards and a lot of customers use it. I think it's well under 17 million holders today.
We've also created digital pharmacy we've launched that for the first time in the U.K. in terms of managing prescriptions copies some of the great ideas that we could pass across the Walgreens as part of the merger.
And of course the cost programs James already referred to in his remarks in terms of moving money from maybe the older model into investing in the future of the Boots business. So, that's a story really where we're using the current market situation to make sure that we're investing our future. And we're seeing some interesting lead indicators of performance. And of course we'll give you more updates as that develops.
嗨埃里克，这是亚历克斯。是。我的意思是让我先从最后一个问题开始，这是一个资金不足的问题。英国政府以某种方式付款 - 我不想详细说明它，但从根本上说它是英国所有药店的市场支付如果你进入所谓的PSNC网站，那里有更多细节关于它是如何工作的。所以，我们相信在最后一段时期资金不足。
Is your PSNC comment suggesting that your business is now adjusted for the changes that have made -- been made to date and you hope that those there might be some improvement moving forward? But you're basing the business from where we sit today?
您的PSNC评论是否表明您的业务现在已经根据已经进行的更改进行了调整 - 您是否希望那些可能会有所改进？ 但是你的业务基于我们今天所处的位置吗？
Yes. Yes absolutely. I would say that's an accurate reflection of where we are.
是。 是的，一点没错。 我想说这是对我们所处位置的准确反映。
Yes, that's a fair point. I think would emphasize the word temporary. So we expect an improvement in Q4 and back to normal levels of funding next year.
是的，这是一个公平的观点。 我认为会强调临时这个词。 因此，我们预计第四季度将有所改善，明年将恢复到正常的资金水平。
That's helpful. And could you just -- on the potential store reduction you mentioned that employees may move to other stores. Can you help us with the way that you run those stores and maybe employment where you could see I guess the revenue impact only 1%, but it is 8% of the store base? Will you continue to carry all of the employee cost?
这很有帮助。 你能不能 - 你提到的潜在商店减少，员工可能会转移到其他商店。 你可以帮助我们管理你经营这些商店的方式，也许你可以看到就业，我猜这个收入只有1％的影响，但它是商店基数的8％？ 您会继续承担所有员工的费用吗？
Yes. I mean it's really straightforward. These are relatively small pharmacies. James said two-thirds are within a walking distance of another Boots pharmacy. And the main cost there to be honest is the cost of the pharmacist. We have pharmacist turnover like any company would have and we simply see that as we have been able to manage the cost while retaining quality people that we need to take care of customers and communities.
And remember we learned a very important lesson here in the USA that if you retain similar face of the pharmacist and health care assistants in the local pharmacy then very often the customers will transfer the script to the people who they know and trust. So, this is economically important to us as well.
是。 我的意思是它非常简单。 这些是相对较小的药房。 詹姆斯说，三分之二的人在另一家Boots药店的步行距离内。 诚实的主要成本是药剂师的成本。 我们拥有像任何公司一样的药剂师营业额，我们只是看到，因为我们能够管理成本，同时保留我们需要照顾客户和社区的优质人才。
And its 8% of the stores it's 3% I believe of the square footage. So, that the employee impact is much lower than the percentage of stores. And then the revenue impact is much lower because there are less efficient stores. So, it's actually quite logical.
And then there's a fair amount of turnover in general in an employee base of -- we have 56,000 people in the U.K. But there's a fair amount of turnover and I think we've seen in the past most you manage the place the majority of people.
其8％的商店是3％，我相信平方英尺。 因此，员工的影响远远低于商店的百分比。 然后收入影响要低得多，因为存储效率较低。 所以，它实际上是合乎逻辑的。
然后在一个员工基础上有相当多的营业额 - 我们在英国有56,000人但是有相当数量的营业额我认为我们过去看到的大部分人都管理着这个地方的大多数人。
Your next question comes from the line of Ross Muken from Evercore. Please go ahead.
你的下一个问题来自Evercore的Ross Muken系列。 请继续。
Hi. This is Elizabeth Anderson in for Ross. I was wondering if you could expand on some of the comments that Stefano made about generic procurement in particular sort of areas of future savings that you see.
你好。 这是伊丽莎白安德森为罗斯。 我想知道你是否可以扩展斯特凡诺关于通用采购的一些评论，特别是你所看到的未来储蓄领域。
Hi, it's Alex here. Yes. I think, I'll say what I said already and Stefano said that it clearly, we still have a very efficient effective and innovative model out of WBAD and we continue to work in a dimension which we think is slightly different. We prefer to have contracts with manufacturers to give them certainty of supply, so that we get certainty of supply back in the marketplace. That's really important to the customers and allows us to plan together in a different way and that's how we work.
Having said that, we all know that the level of opportunities as Stefano said is changing going forward. It's not -- we're not going to make savings, we will make savings, it's just changing. So, we have setup some innovative partnerships already. The partnership we setup with Express Scripts for example is one where we're combining the volume from a PBM with the volume from the Retail Pharmacy. And we continue to look at other ways of making sure that we've got the right scale and mix of partners going into WBAD going forward.
I think secondly, the manufacturers are thinking differently as well. And again, we can't talk on their behalf, but you probably have some of the things they have been saying. And we think that our approach to buying in partnership with them and the way that we organize, how we work with them, will continue to give us advantage into the future going forward.
Of course, in the future, other markets may open up. We don't know that in reality and we're not banking on that particularly and how we see the plan going forward. But clearly, things will change in one direction and could change again. And having a global perspective and global volumes, we think will give us global opportunities in the future as well.
话虽如此，我们都知道斯特凡诺所说的机会水平正在向前发展。事实并非如此 - 我们不会节省开支，我们会节省开支，而只是在改变。所以，我们已经建立了一些创新的伙伴关系。我们与Express Scripts建立的合作关系就是我们将PBM的数量与零售药房的数量相结合。我们继续研究其他方法，以确保我们有合适的规模和合作伙伴进入WBAD未来。
All right, thanks. That’s very helpful.
Your next question comes from the line of Glen Santangelo from Guggenheim. Please go ahead.
您的下一个问题来自古根海姆的Glen Santangelo系列。 请继续。
Yes, thanks for taking my question. I just had one of the follow-up on this reimbursement issue one more time. If I heard you correctly, one of the main key is you keep pointing to is that in order to combat the reimbursement pressure, you'll need scale, but yourself and your closest competitor you guys have more scale than anyone else in the marketplace and you seem to be having issues. And so, I was wondering if you could comment more broadly on the 65,000 to 70,000 pharmacy counters out there. I mean, they must be obviously feeling more pressure than you. And I was just kind of curious, are you starting to see that total number come down? And I guess my question is can the reimbursement pressure subside until some of the capacity comes out of the market?
是的，谢谢你回答我的问题。 我刚刚再次就此报销问题采取了后续行动之一。 如果我没有正确地听到你的话，你要指出的一个主要关键是，为了抵消报销压力，你需要规模，但你自己和你最接近的竞争对手你们比市场上的任何人都有更多的规模。 你似乎遇到了问题。 所以，我想知道你是否可以更广泛地评论那里的65,000到70,000个药房柜台。 我的意思是，他们显然要感受到比你更大的压力。 我只是有点好奇，你是否开始看到总数下降了？ 我想我的问题是，在一些产能流出市场之前，偿还压力是否可以消退？
It's Alex here. Again, I think we've said already. The way that we measure the market internally, we are starting to see some pharmacies close. And I think these numbers are pretty open in the marketplace as well. So, that is bound to happen and not reopen. And so, I think that is a fact you can check obviously out there. I mean secondly, you only have to look at the comments from other competitive marketplaces to see the pressure that we are all feeling in the marketplace.
The other side of the coin is that, we continue to believe strongly, the community care and the pharmacy, the physical location in the community with the pharmacist available and accessible, I know is a really great opportunity for not just pharmacies, but for health care, all connected through data, all connected with other health care professionals, all connected to bringing forward new solutions going forward. That's why we are so excited about the work we're doing, not just with Microsoft, but with as Stefano said other relevant partners. For example Verily, we've managed as well and LabCorp. And I can assure you the list could go on in terms of the people who are talking to us and we are talking to them.
So, we are really confident about the future of pharmacy. We're really confident that the model that we see today will change, driven by new technologies and the same need that customers and patients have always had which they have a conversation with their local pharmacist in their local community.
Hey Alex, maybe if I can just follow up on the one just sort of comment you were talking about with respect to some of the partnerships. I mean over the last year and a half, we talked a lot about the JV strategies and trying to crack the code of generating additional foot traffic. And it seems like there has been mix results on that front. May be I'm wondering, if you could just sort of reiterate exactly where the strategy stands today. And maybe what has worked better than what you might have thought? What maybe hasn't worked as well as what you thought? And I'll stop there. Thanks.
嘿亚历克斯，也许如果我能跟进你正在谈论的一些关于某些伙伴关系的评论。 我的意思是在过去一年半的时间里，我们谈了很多关于合资企业策略并尝试破解产生额外客流量的代码。 似乎在这方面有混合结果。 我可能想知道，如果你可以恰好重申一下今天战略的确切位置。 也许什么比你想象的更好？ 什么可能没有你想象的那么好？ 我会在那里停下来。 谢谢。
Thank you. Thanks Glen. I'll give an example of where we are very comfortable, which is our FedEx partnership. Again, we are seeing the footfall that we expected. We are seeing the halo from our footfall that we expected i.e., new customers to Walgreens and we are also seeing the opportunities to work closely with the FedEx team strategically to develop new customer propositions in the corner drugstore. So that would be one example that we are very comfortable with.
And of course, going forward, there'll be other partnerships which are really interesting. We mentioned already the Kroger partnership is going well and the customer reaction has been positive. So again, that's another example where we believe that Kroger are really are experts in food and they can help to really improve our customer proposition and value over time. But time will tell, if we can find the right model that works for both companies and also for customers.
谢谢。 谢谢格伦。 我举一个例子，说明我们非常舒服，这是我们的联邦快递合作伙伴关系。 我们再一次看到了我们预期的客流量。 我们正在看到我们预期的客流之光，即Walgreens的新客户，我们也看到了与联邦快递团队密切合作以在角落药店开发新客户主张的机会。 这就是我们非常熟悉的一个例子。
当然，在未来，还会有其他合作伙伴关系非常有趣。 我们已经提到Kroger伙伴关系进展顺利，客户反应积极。 再说一次，这是另一个例子，我们相信Kroger确实是食品专家，他们可以帮助真正改善我们的客户主张和价值。 但是时间会证明，如果我们能够找到适合两家公司和客户的正确模型。
Your next question comes from the line of Michael Cherny from Bank of America. Please go ahead.
你的下一个问题来自美国银行的Michael Cherny。 请继续。
Good morning and thanks for all the color so far. Just thinking about 4Q, I know you had talked about a number of the moving pieces and some of the reimbursement true-ups that you've seen so far year-to-date. With regards to the removal of pressure on Retail Pharmacy gross margins or at least less pressure, I guess, what gives you the confidence? And why do you think it should get better? Is there something in mix? Is there something in timing? Is it just the annualization or I guess the -- within year annualization of those pressures that you've talked about relative to last quarter and this quarter? I guess I just want to know a little bit about the why relative to the sequential gross margin improvement?
早上好，感谢所有的颜色到目前为止。 考虑到第四季度，我知道你已经谈到了今年迄今为止你所看到的一些活动部分和一些报销问题。 关于消除零售药房的毛利率或至少压力较小的压力，我想，是什么让你有信心？ 为什么你认为它会变得更好？ 混合中有什么东西吗？ 有时间吗？ 这只是年度化还是我猜 - 相对于上一季度和本季度你所谈论的那些压力的年度化？ 我想我只是想了解一下相对于连续毛利率改善的原因？
Yes. I think it's a little bit of everything you said actually, because you have to go back on a journey. Q2 was reimbursement pressure which we said I think was exceeded 30% of the full year reimbursement pressure. So, we would've set an unprecedented level. We saw it go back to more normalized level in Q3. But we saw some slowness on the procurement savings in Q3. And we're going to see those -- both of the variables equalize in Q4. So it gets back to -- you can't really look at it as reimbursement. It's reimbursement net of the mitigation. The biggest two are, one is procurement savings and there's being some tuning between Q3 and Q4 there.
When you get to volume, I want to highlight, we had a great quarter in Q3. We set some fairly challenging goals internally. Bear in mind, we had script volume for the first half on a comp basis below 2%. So to come in the high fours was something we needed to do it and we need those kind of numbers. That's number one.
We're also very pleased with the way retail came in. If you strip it back a little bit, it's down 1.1. We were tracking in the first half of a pretty disappointing 3.5% comp store decline. But the change-on-change is quite impressive. We won't deliver exactly the same numbers, but we will continue to hold onto some of these trend improvements.
I think what will happen in Q4 is, you will see a little bit of stabilization of the topline outlook together with some improvement in both businesses on the margin side. So it's a confluence of trends. And I'll highlight again then you've got these two big one-time items in overheads. So, it's too early to call victory in Q4 obviously, but that's where our current expectation has improved gross margins and continued stabilization of scripts and the same-store sales and retail. I hope that helps you as you think through it.
是。我认为这实际上是你所说的一切，因为你必须重新开始旅程。 Q2是报销压力，据说我认为超过了全年报销压力的30％。所以，我们将设定前所未有的水平。我们看到它在第三季度回归到更加规范化的水平。但我们看到第三季度的采购节省有些缓慢。我们将会看到这些 - 两个变量在Q4中均衡。所以它回到了 - 你不能真正把它视为报销。这是缓解的报销净额。最大的两个是，一个是采购节省，第三季度和第四季度之间有一些调整。
I'm afraid, but that's probably all we have time for. I know we haven't got to all your questions, but as ever the IR team are around to answer them all. And I'm sorry for those of you who didn't get to ask questions today. We'll be back again next quarter. Thank you very much indeed.
我很害怕，但这可能就是我们所有的时间。 我知道我们没有解决您的所有问题，但是IR团队随时都会回答所有问题。 我很抱歉那些今天没有提问的人。 我们下个季度会再次回来。 非常感谢你。
This concludes today's conference call. You may now disconnect.
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