Walgreens Boots Alliance Inc at Wolfe Research Healthcare Conference (Virtual)

REFINITIV STREETEVENTS EDITED TRANSCRIPT WBA.OQ - Walgreens Boots Alliance Inc at Wolfe Research Healthcare Conference (Virtual)

EVENT DATE/TIME: NOVEMBER 19, 2020 / 6:10PM GMT

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CORPORATE PARTICIPANTS Alexander W. Gourlay Walgreens Boots Alliance, Inc. - Co-COO James Kehoe Walgreens Boots Alliance, Inc. - Executive VP & Global CFO

CONFERENCE CALL PARTICIPANTS Justin Lake Wolfe Research, LLC - MD & Senior Healthcare Services Analyst

PRESENTATION Justin Lake - Wolfe Research, LLC - MD & Senior Healthcare Services Analyst Good afternoon. Thanks, everyone, for being here. My name is Justin Lake. I cover health care services here at Wolfe Research at our 2nd Annual Virtual Healthcare Conference. Really pleased to have with us today some of the management team from Walgreens. We've got the company's CFO, James Kehoe. We've got the company's Co-COO, Alex Gourlay. We've also got Gerald and Jay Spitzer, the superstar IR department, making sure we keep this legit.

QUESTIONS AND ANSWERS Justin Lake - Wolfe Research, LLC - MD & Senior Healthcare Services Analyst So guys, I do want to start off with kind of the news of the week, give you an opportunity to talk about Amazon, a little bit about the cash-pay business, what you think Amazon could mean for your business over time. So James, Alex, maybe we could start there.

James Kehoe - Walgreens Boots Alliance, Inc. - Executive VP & Global CFO Yes. Listen, I'll start, and then Alex will weigh in. I do want to make one point upfront. And it's an interesting one on mail order. And mail is essentially 10% of the U.S. market. So while it's sizable, it's not material. 2 is during COVID, which was the essential acceleration of all things digital, there was an acceleration of the mail and maybe it's hit for a month or two 12%, but then it went back down closer to 11%. So actually, the resilience of the mail system is actually quite unproven, and consumers are very loyal to the convenience that comes with the 9,000 locations and the ability to interact with a pharmacist.

The other part is the headline was -- kind of the response to the headline was disappointing to us. And I'll be quite frank on it. They are a formidable competitor in every sense. But the flip side is, this is a little bit apples in compared to oranges. And I want to ask you a couple of questions as the audience. When you want to go and get your COVID vaccination, are you going to call Amazon or are you going to call Walgreens or CVS? They don't have a physical network of 9,000 locations that deliver essential services and COVID brings it to light.

The second question is you're driving home with your -- and your kid is sick, and you want to pick up quick medicine for your kid. Are you really satisfied with the 2- or 5-day promise that Amazon will give you? Or do you want the medicine the same day? And we will have a suite of offerings in market effectively now that will allow the consumers to get their product in-store, curbside, drive-thru or home delivery. And our promise won't be 2 days. That's vastly ineffective in the market in which we operate. It needs to be same day. And in some cases, we will be offering as little as 30 minutes availability. And that's what somebody needs when they're sick. They don't need 2 days.

So I'm a little afraid the headlines haven't -- some of the headlines have looked at this and used the vaccination example. We just want to bring it to life. We're not ignoring the trait. So there's a lot of things we will do. And then I'll pass it over to Alex. Number one is the lowest cost operator. We have a large cost program. Cost to fill is top of mind. We will be the lowest cost operator. Two is, we have large scale. We have a 20% market share. So we will purchase as well as anybody else, and we will operate and deliver as well, if not better than anyone else. And the part, I think, Alex,

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©2020 Refinitiv. All rights reserved. Republication or redistribution of Refinitiv content, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 19, 2020 / 6:10PM, WBA.OQ - Walgreens Boots Alliance Inc at Wolfe Research Healthcare Conference (Virtual) will bring more to life is 2 things. The pharmacy is not about delivering prescriptions through the mail. The pharmacy is about improving health outcomes. And we're on a journey -- a multiyear journey. And we believe that the interface between digital assets and our physical locations and our pharmacists is unbeatable longer term. And maybe I'll pass over to Alex just to bring to life some of the things we've announced just even today.

Alexander W. Gourlay - Walgreens Boots Alliance, Inc. - Co-COO Yes. Thanks, James. And so I think that what we announced today really is, we call myWalgreens, which is good 2 elements to it. If you think of the $100 million bounce awards, cardholders we have today, and you think of the 65 million people have downloaded the Walgreens app, primarily for pharmacy services today, both of these are coming together in this new platform called myWalgreens. An idea here is to really redefine convenience. At the same time as launching myWalgreens and already, we're converting millions of customers, as I speak, to this new platform. And it's only a few days in digitally, and it's just been rolled out to certain stores, probably complete by the end of this month.

As well as doing that, we're also doing is an office about redefining our convenience, and we think it redefines some market convenience, which means that using the myWalgreens app you can pick up OTC items in less than 30 minutes, which we think is redefining speed and convenience, combat this whole idea of the convenience of the drug store channel and a pharmacy channel. Also within the myWalgreens app is going to be other things, value, for example. We're going to give a 5% cash back on own brands and 1% cash back on everything else. We already have embedded in this myWalgreens our Prescription Savings Club, which has grown materially since we relaunched it in April for 80% discounts on generics.

And also, within the value proposition, of course, we will continue to redefine our value going forward and stay competitive in the marketplace using the cost to fill and the cost of goods and the cost program, as James has said, to really invest to make sure that we stay competitive in the marketplace. I think, also importantly, as James has said, beyond the myWalgreens app and the approach to the less than 30 minutes, we have got a 25,000 pharmacists in 9,100 plus drugstores and pharmacies in the best corners across America. And they've already administered a record-breaking number of flu vaccinations this year. And we're getting ready for COVID. I'm sure we'll have a question in COVID vaccinations in a few minutes.

And beyond that, of course, as James alluded to, we are doing more and more health outcomes and testing more and more with both insurance plans and health systems about the role that pharmacists can play to actually improve the quality and reduce costs in the health care systems, whether it be adherence programs or whether it be how to take your medications in a more managed way or whether it be also other areas, for example, health checks. All these are programs that we're working at a local level and, of course, with the Medicare plans at a national level. But the big news today is to restress again is the launch of myWalgreens. It's been planned for a little while. So it wasn't planned to coincide with the news from Amazon, and this happened to happen the same week. That we believe, again, moves our game on and differentiates us even more in the marketplace.

Justin Lake - Wolfe Research, LLC - MD & Senior Healthcare Services Analyst That's really helpful. To your point, Amazon certainly has a long way to go, I think, to be competitive on the -- even in the mail order business, much less on same-day spreads, like you said. I would like to understand a little bit, and you're in a unique position to kind of be helpful here in terms of just understanding. They also talked about working with Express Scripts Evernorth on a cash card. And so I think the numbers that we've seen is about 10% of scripts, our cash-pay. Is that a reasonable estimate in your business as well?

Alexander W. Gourlay - Walgreens Boots Alliance, Inc. - Co-COO Yes. Yes, that's a reasonable assumption, yes. Yes.

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Justin Lake - Wolfe Research, LLC - MD & Senior Healthcare Services Analyst And then relative to revenue, I've heard numbers all over the place, but it sounds like it could be a bigger percentage of revenue. Is that a -- is it around the same percentage of revenue? Or is it a little bit bigger?

Alexander W. Gourlay - Walgreens Boots Alliance, Inc. - Co-COO It's around the same percentage. So you can imagine both are about the same in our scale of business. Yes.

Justin Lake - Wolfe Research, LLC - MD & Senior Healthcare Services Analyst Okay. And so is the profitability for you any different right now, cash-pay versus someone coming in and using their insurance? Cash-pay...

Alexander W. Gourlay - Walgreens Boots Alliance, Inc. - Co-COO Not particularly. I mean, I think we've been -- go back to -- we've been investing in the cash business because it became pretty clear when the cash business started to grow. Before the pandemic and before the effect of the pandemic, we were aware that this was a likely point of entry for what was PillPack and Amazon Pharmacy. And it's been a very competitive space for a while. So that's why we relaunched the Prescription Savings Club, as I said before, with 80% discounts -- up to 80% discounts on mainly generics. We have also loads of manufacturers programs as well. So again, we've been investing to make sure that we sustain and actually grow our share in this important, big business. And again, we've given some numbers in previous conference calls about the amount of savings that we've been able to give to patients since we relaunched the card. So I would say that we see this as an important book of business. It is a profitable book of business, and we're investing to keep it growing with the market and to do even more in the cash and the savings card business.

James Kehoe - Walgreens Boots Alliance, Inc. - Executive VP & Global CFO But I will, Justin, a little bit. It's the combination of the advice you give the patient. It's the combination of convenient locations, convenient delivery, when they want the product, together with effective prices. And I don't think you're going to see somebody move between 2 pharmacies for a generic that costs $3.50 or $4. They're not going to move for the $0.50. There's a personal connection then in local community pharmacy where people value the advice. So it's not all about price, but we're very keenly focused on the entry. And our response to the entry is effectively in place with the existing Prescription Savings Club. But there's more we will do to make our offering even more keen. But don't leave out the convenience benefit and the availability of 360-degree health care.

Alexander W. Gourlay - Walgreens Boots Alliance, Inc. - Co-COO And also on the branded front -- just to be clear on the branded front, we obviously use the manufacturers' coupons in a very appropriate way. And you can imagine that manufacturers are very keen for Walgreens to have their most up-to-date discounts available for certain customers in certain trips. And we've got well connected in as well. So our people are able to offer the best price for the drug and a combination of the Savings Club and other methodologies that we use formally to get that done primarily, of course, manufacturers coupons on branded drugs.

Justin Lake - Wolfe Research, LLC - MD & Senior Healthcare Services Analyst That's helpful to understand. I appreciate you sharing that. Let's move over to COVID. And first, we'll talk about the vaccine opportunity. And second, we'll talk about the second wave we're seeing and how it's impacting the business. So on vaccine, how do you see the economics here? A lot of what I'm hearing is that for a significant amount of agents, certainly on Medicare, the government is going to be paying for the actual dose or at the actual drug. And you'll be paid an administrative fee above and beyond that. Can you talk us through the economics there in terms of maybe by payer how you're understanding it's going to work and then how it's going to impact Walgreens?

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James Kehoe - Walgreens Boots Alliance, Inc. - Executive VP & Global CFO Yes. Let me give a couple of upfront comments, though, and then -- because Alex is much closer to this. But I do want to cycle back to what we said when we provided guidance. We said -- and you correctly highlighted both. We actually said the vaccination opportunity is not in the income statement. But we equally said the second lockdown is not in the guidance as well. And we are seeing quite a slowdown, particularly in cough, cold, flu right now as a result of the pandemic. And maybe we'll come back to that piece a little bit later. So while we do see a sizable opportunity coming from vaccinations, we still think there's sizable risk versus on a second lockdown, given the huge spike in cases in the U.S. and a 4-week lockdown in the U.K. So I think let's take both topics.

The first one on vaccinations. The way you simplistically can model this out is the government has set some goals in case -- in terms of how much of the population they'd like to see vaccinated. The goal is obviously around 75%. So time will play out on how quickly that's achieved or at what rates achieved. And then 2 is -- the second step is somewhere between 25% and 30% will go through the retail channel. So it's not as much as you might expect. And then of that, we would expect to capture fair share or slightly more than fair share because of our national coverage. But this whole thing is quite complex because the federal government has secured the supplies. So we effectively won't have a cost of product, while we will be doing as a fee-for-service. And the HHS has already determined the fee-for-service in a recent announcement. So essentially, a single dose is around $28. That's the fee-for-service.

And then the second -- the 2 dose, one, you get $16 for the first application and $28 for the second. So the revenue cycle has been somewhat determined. The costs are very much all over the place. So we're closely aligned with the government Warp Speed initiative. So we're very tightly integrated on the logistics development. So you've got all the deep freezing required for the Pfizer application, which comes with a certain type of cost. And then -- so I guess each vaccine will have a different profit profile.

The one thing I would point to is we will have to add a significant amount of overheads to administer this because this is a pandemic. A large proportion of the U.S. population needs to be addressed in the shortest period of time possible. So this can't drag over 12 months. This has to get done really, really quickly. And the best way I could give you the example is -- and this is just an example. If a flu vaccine is 15 minutes, and that's not the right number, but including scheduling, administration, checking the insurance, all that kind of stuff, a COVID vaccine is 3x more complex. Given the track and trace, given the federal reporting, but equally so, each of the applications, at least in the short term, will be negotiated state by state, and every state will take a slightly different approach.

So I think as people are trying to model out the profitability, and we're not telling you profitability, the level of overheads, if you take our average overhead rate, could be double the amount on a vaccine business, double or higher because it's a much more time intensive and complex process. So we think the rates set by the government are fair. We think everybody will be sufficiently compensated, but it's too soon yet to say what the profitability is. So it is an opportunity versus our forecast. But equally, lockdowns are negative. And maybe I'll hand over to Alex because Alex is personally involved in the Warp Speed's conference calls.

Alexander W. Gourlay - Walgreens Boots Alliance, Inc. - Co-COO Yes. No, it's -- I mean, the only build, I would say, really is it was back to -- we have a vaccination muscle in pharmacy, ourselves, CVS, in pharmacies like no other in the country. And that's why Operation Warp Speed has chosen pharmacies. And I think that's an indication, again, of the platform we have. The second thing I would say is that the timing you've been hearing from the industry is the same timing as we have been hearing internally from the team as well. So this is looking like it's coming soon. And the 4 vaccinations is determined. And I think Alex Azar said, this week I read, there's about 40 million a month doses. And again, we've heard similar numbers. And of course, that's another indication.

The most -- for me, the most important takeaway is that this is going to get the economy at some stage back to normal. And that's why, from our perspective, as James said really clearly, we are geared up to get this time at an appropriate cost, but fast because we recognize our responsibility to the broader health care system to get this done. And it goes back to the essential services that pharmacy will offer in the future. This just demonstrates again and again why the pharmacy channel and the physical pharmacy channel is so important to our nation and so important to the health care marketplace. And there'll be more opportunity, not less, at the back of this pandemic in the area of health care services, health

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©2020 Refinitiv. All rights reserved. Republication or redistribution of Refinitiv content, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 19, 2020 / 6:10PM, WBA.OQ - Walgreens Boots Alliance Inc at Wolfe Research Healthcare Conference (Virtual) outcomes and saving money. And I know that's not how the marketplace sees us today in terms of the way they award our future. But again, it's a great example of why this is such an important channel, the physical channel and the human channel, led up by digital in the way that James described. And there can be no better example than this way, in my view.

Justin Lake - Wolfe Research, LLC - MD & Senior Healthcare Services Analyst That's all really helpful. And so you're making an interesting point in terms of the cost of delivery here. I didn't realize the 3x, for instance, administrative time relative to a flu vaccine. Because I do think a lot of people are looking at this relative to a typical vaccine, like a flu and a flu shot and saying the -- especially with the government COGS out, right? So it's just administrative fee relative to a pretty fixed overhead in a store, and they're thinking their margins could be double the typical margin of a store. I know you're not giving numbers here, but it sounds to me like where you're positioning us to be thinking about is, this will be margin accretive, but it might be more of a typical margin for the store rather than a 2x kind of fall through that some people might have thought originally. Is that a reasonable way to think about it?

James Kehoe - Walgreens Boots Alliance, Inc. - Executive VP & Global CFO I think it's also reasonable to say that we also don't have sufficient visibility to it right now. And some -- and actually, on some of the vaccines, you may even lose money. So think about the long-term care facilities. You actually -- first of all, you need a pharmacist that's incremental to the base business, right? It's not somebody you pull out of the store because your store still continues to operate. The second way you got all the reporting, but physically they're going to be going to the long-term care facility. They're not even using the existing care. And then there's very short -- once the Pfizer vaccine comes out of the freezing, the deep freezing, I think there's like a 5 hour usage shelf life. So actually, the supply chain needs to be highly efficient or else you have huge product losses.

And when you lose a product on flu vaccine, it costs you nothing. The cost of product is a low percentage. But these are quite expensive products. So this is -- it's a -- so we think long-term care facilities will have low profitability. And as it becomes a more stable 3 months in, then I think you'll see an accretive margin, but we can't give you numbers. It would be irresponsible right now, given the lack of clarity. Because the eventual margin and the eventual revenue you get is going to be determined, to some extent, by the way the state treats this and how complex the actual execution is locally. But it is an opportunity for the full year.

Justin Lake - Wolfe Research, LLC - MD & Senior Healthcare Services Analyst Yes. And lastly, is there any thoughts on the potential pull-through here as people are coming through the store, that could be another opportunity? Is there a way to think about that in terms of when you administer a flu shot, for instance, is there a -- someone picking up a can of deodorant on the way out? Or do you have a way to track that?

Alexander W. Gourlay - Walgreens Boots Alliance, Inc. - Co-COO Yes. Well, I'll go back to additional capabilities has really improved. I think we said last time we got 130 basis points of additional like-for-like sales in the front end using mass personalization or our Microsoft technology, our Adobe technology. We're getting better and better and better at driving that connectivity to know who you are, what you're interested in as you work into pharmacy. And people who are going to get the COVID vaccination are going to be really focused on keeping themselves healthy, particularly in the early days when they want to get back to work or back to a normal life.

And we're seeing big obelisk still in the PPE categories, things like vitamins, immunotherapy, for example. It's a great category, which is doing really well. So again, I think, there are specific things we can do from a marketing point of view, and there's things that happen naturally as more and more people are more and more aware of their health care needs. So absolutely, there will be upside available to us. But I go back to, more importantly, this is a sustainable behavior. There's not one-and-done for us or for the population. People are much more interested in how they take better care themselves as they come back to this pandemic and they see pharmacy as a place to find the solutions fast.

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Justin Lake - Wolfe Research, LLC - MD & Senior Healthcare Services Analyst That's great. And now let's switch over and talk about the impact of this COVID spike that we're seeing in the quarter and how you want investors to think about potential impact there relative to what you've already assumed in guidance, specifically for the quarter, but also for the year?

James Kehoe - Walgreens Boots Alliance, Inc. - Executive VP & Global CFO Yes. And simplistically, Justin, it's a good question. We're assessing it on a daily basis. What is the vaccination opportunity, and what are we seeing due to the lockdowns? And I'll try out a couple of numbers. And I think we were -- I think I'll start off by saying that September, October were pretty strong months, but we did see signs of a slowdown in the front of store in the U.S. And we're seeing 2 things happening. It's connected very deeply with COVID. So the higher levels of hygiene, less connectivity between people, people wearing masks, the cough, cold, flu season and some of our competitors have referred to this is down quite dramatically. So the incidence of flu was down 16%. And an interesting 1 is there is such a thing as seasonal scripts.

So take it an antibiotic. Once you get the flu, seasonal scripts are down 30%, and it has quite a material impact. That's about 200 to 250 basis points negative impact. And that's what we're seeing right now. The flip side is, in Q1, that's actually pretty okay because we saw a big uptake in flu vaccination. So in the first quarter in scripts, we're feeling fairly decent. We're a little bit worried if the trend continues on cough, cold, flu, we are seeing some pressure on both scripts and front of store. And the lockdowns are having a bit of a toll. And it's not traumatic. It's not dramatic because if -- I'll give you an example and they are not precise numbers. If footfall was low teens decline a month ago, now it's mid-teens. So it's not as if it's got twice as, but it's a little bit worse than our planning assumptions.

So we are making an assumption that COVID will have a bigger impact than we anticipated probably in the second quarter. And then vaccinations will give us a positive offset. That's simplistically the way we're thinking about it right now. The issue is nobody was expecting the amount of daily cases that we're seeing in the U.S. And the incidence rates are way higher than we projected when we put our plan together, way, way higher. And we have the U.K. in lockdown right now for 4 weeks. But I was going through this yesterday. The impact that we saw in April, May of last year, we had 60% declines in front of store revenue in the U.K. It's basically a big beauty business and personal care business. That equivalent during this lockdown is way lower. It's like 30%. So as we've gone through the crisis, we can manage it much better.

And the best example is we have days in the U.K. right now where our e-commerce business, which is quite large, is up 200%. So it's quite similar to what some of the more e-commerce focused retailers are seeing in the U.S. So our response to the pandemic is much more organized. We have hybrid stores. We have picking in-store in the U.K. We have very few capacity restrictions. And I think we will come out of it stronger. But right now, we're a little bit concerned on -- Q1 is fine. Q2, we are a bit concerned on the cough, cold, flu and some of the lockdowns we're seeing in the U.S. Like they're not the same lockdowns as before, but they do temper the foot traffic in the stores. And I hope that gives you enough perspective on what we're seeing right now. Nothing to be really concerned about. We're very comfortable on still about our full year guidance. But if I were analyzing the market right now, I'd be saying vaccination opportunity, lockdown risk, and that's unchanged from when we gave our original guidance.

Justin Lake - Wolfe Research, LLC - MD & Senior Healthcare Services Analyst Got it. Got it. Do you feel like the second quarter -- first and second quarter, clearly, are bigger cough, cold, flu season than the third and fourth? So if this were to continue for a while and foot traffic's slower, it wouldn't have the same negative impact in Q3, Q4?

James Kehoe - Walgreens Boots Alliance, Inc. - Executive VP & Global CFO Oh, no, I think you bring up a great point. It's purely a short-term thing. We're 2 months into our first quarter already, and we have good visibility on that result. So I think this is purely a timing issue on lockdowns because we're actually quite encouraged by what's happening at a federal level

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©2020 Refinitiv. All rights reserved. Republication or redistribution of Refinitiv content, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 19, 2020 / 6:10PM, WBA.OQ - Walgreens Boots Alliance Inc at Wolfe Research Healthcare Conference (Virtual) with the vaccinations. And we have assumed, at the end of Q2, vaccinations would start to be available more broadly. So the vaccination assumption hasn't changed. The problem is just how bad the number of daily cases are in the U.S. is way worse than we were expecting.

And that's the differential. So you're quite right, there's very little difference to the second half outlook. There's probably upside to some extent because of vaccinations. It's literally more of a Q2 second quarter discussion. I'm not even particularly concerned first half versus second half. I think quarter 1 is fine. So basically, from our point of view, no reason to get concerned, Q2 could be a little bit bumpy. Q1 is working out decently. The second half, we still have good visibility into the programs we have and the initiatives we have. So overall, we're feeling pretty comfortable on the year.

Alexander W. Gourlay - Walgreens Boots Alliance, Inc. - Co-COO Yes. In Q3 and Q4 in health care, I know it's obvious for us. Our Q3 and Q4 is all about there. It's all about hay fever and the effect of environment. So the cough and cold season finishes in most places February, March, don't know about Chicago, in most places.

Justin Lake - Wolfe Research, LLC - MD & Senior Healthcare Services Analyst Got it. Is there any kind of -- what you're saying here, I think, is that you've got this 200, 300 basis point negative impact from scripts and store traffic and the flu vaccines offsetting it. If that continues, the -- can you give us an idea of what that would mean for the second quarter, when you don't have a flu vaccine impact? Is there a way to put a number around that or the vaccine benefit, the flu vaccine benefit that you're seeing, just so we could kind of proportion the second quarter impact?

Alexander W. Gourlay - Walgreens Boots Alliance, Inc. - Co-COO Yes. Yes.

James Kehoe - Walgreens Boots Alliance, Inc. - Executive VP & Global CFO No, but it's a bit of a tough call because you're going to have some of the vaccinations coming in. But I think I said it a little bit earlier.

Justin Lake - Wolfe Research, LLC - MD & Senior Healthcare Services Analyst Do you need the vaccinations, guys, just to make it simple because investors will be able to tell when the vaccination start later on. But how much of a headwind are you facing in 2Q before the vaccinations kick up?

James Kehoe - Walgreens Boots Alliance, Inc. - Executive VP & Global CFO Yes. I think we're seeing our cough, cold, flu business in general is down about 20% on the front of store. And on the front of store comps, I'll give you a rough number. That could be 150 basis points, just roughly. And I think I said earlier that on the script side, if you've got your seasonal scripts down about 30%, and let's call it the antibiotics and the treatments that would normally address cough, cold, flu, that's down around 30%. That will give you a headwind on overall script volumes of up to 200 basis points. So it's quite material.

The first quarter wasn't an issue because you got the flu vaccinations coming in. It's the second quarter where you won't have flu vaccinations, but you will start to have the start of the COVID vaccinations. So it's very hard to play one-off against the other here. All we're pointing to is the impact of COVID is higher than we expected, because of shutdowns and the spike in cases and the knock-on impact on the cough, cold, flu business. We probably underestimated as we pulled our budgets together. As we look on a full year basis, though, we're not concerned about full year guidance we issued before.

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Alexander W. Gourlay - Walgreens Boots Alliance, Inc. - Co-COO Yes. Yes. I agree with James. I think the other thing is to point out, which I think we spoke to a little bit in the last conference call, which is I think upside for next year is that we still don't have enough people going new to therapy. We still got a lot of people who are not going to hospitals or doctor surgeries. We all know this. So that's the other thing. But despite all of that, we're feeling good about January 1. We're back into a number of Med D plans.

We're seeing growth, for sure, as I said before, in our prescription business through the cash plan as well. So there is some headwinds, as James described, which are pretty obvious. And there's also some tailwinds, which we've been working hard at getting done in the last period, and we don't see any change there. We're pretty comfortable with what we said. The Med D season, which is a big deal for all pharmacies, January the 1, we're feeling quite good about our growth there, and we're feeling quite good about the networks that we've got back in and the 1 -- and the relationships we have already with people at United.

Justin Lake - Wolfe Research, LLC - MD & Senior Healthcare Services Analyst Got it. No, that's incredibly helpful. I appreciate you walking us through that in the detail you did. We'll make sure to get that out to the folks who are on the webcast here. The other thing I wanted to talk about a little bit about on the core business is the international and how we should think about that. Thinking about that business relative to, let's just call, 2019 level more typical, right. How do you see the international business? How should we think about that within the construct of the guidance? If you can give us any color there.

James Kehoe - Walgreens Boots Alliance, Inc. - Executive VP & Global CFO Yes. I think we've got a tremendously strong pharmaceutical wholesale business that always grows revenue mid-single digits, sometimes high single-digit and gives its normal 4% or 5% profit growth. And we don't see any real change in the trajectory of that business. We're pretty excited because we recently closed on a joint venture in Germany. We're basically combining with McKesson, and that was approved by the competition authorities with very little adjustments to the original construct. So that will give us a good pipeline going forward. When you flip to the international segment, it had a bad year last year, and it's exactly for COVID. So essentially, a high cost business with a high cost beauty retailer, and it was effectively shut down for about 4 months. There was no foot traffic.

So whereas in foot traffic in the U.S. at its peak was down 25%, Boots was down 60%. So the good news out of that is the base is lower. The management team has executed extremely strongly against the cost objectives. We recently announced a 7% reduction across 62,000 workforce. So it's not a small program, dramatically tackling all of the cost structure. 2 is, what they've done on e-commerce is exceptionally strong. We basically can do a Black Friday every day now compared to pretty limited capacity before COVID.

And then, finally, a lot of the retailers are suffering in the U.K. So we started to regain share. And when I mean retailers, I mean department store scale. We compete on perfumes, cosmetics and stuff. They're in a deep trouble financially. And we're regaining share already on the beauty business. I said recently, I think. You could plot a curve. If you took the profit -- the absolute profit of the U.K. business before COVID and did a straight-line over 24 months, that's how aggressive the recovery will be. And it fell off quite a bit. So there were numbers of months where we were losing money. And the recovery will be very, very strong. So within the guidance, we're counting on a strong recovery, particularly in the U.K. market.

The other markets, Ireland is a big market, and our opticians business is really big in the U.K., but nothing like the U.K. But I'll give you one start. We basically had our opticians business, which is a $500 million revenue business, closed for 4 or 5 months. All of the stuff sent home and furloughed in a deep loss. They've had a really strong start to the year. So there's a lot of pent-up demand. And I think we'll see the same in the U.S. as people are vaccinated. We're booked out even during the lockdown for the next 4 to 5 weeks in opticians. Why? I think there's a bunch of people who have just said, "I can't wait any longer." But we're not quite seeing that in the U.S. on medical procedures. It's still -- new prescriptions are still quite slow. People have not gone back for major treatments. So I think we're very happy with the U.K. base businesses right now. They're recovering nicely. And our concern is more on the extended lockdowns if they were to happen in the U.S.

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Alexander W. Gourlay - Walgreens Boots Alliance, Inc. - Co-COO Yes. And the other thing, again, just to point out at the end of all, end -- I just want to add. We shouldn't forget our business in China, our joint venture, which continues to expand. So again -- and we're learning quite a lot about this pandemic in China and bringing it back into our markets as well in terms of how they're dealing with it differently. And the supply chain has done pretty well out of China as well. So again, we've got a material investment in China, and it has continues to grow and do extremely well. And again, it's something else to think about for the future of WBA, for sure, but...

James Kehoe - Walgreens Boots Alliance, Inc. - Executive VP & Global CFO Pharmacies in China are highly valued on the stock exchange, and this is a private entity, where we have 40%. And we've gone from 3,500 stores to 7,500 since the acquisition a couple of years back. And the goals going forward are equally strong. But at some stage, that's -- we believe that's an asset that's undervalued, the portfolio, especially worried ever to end up as a listed entity in China.

Alexander W. Gourlay - Walgreens Boots Alliance, Inc. - Co-COO Yes.

Justin Lake - Wolfe Research, LLC - MD & Senior Healthcare Services Analyst That's really helpful. Well, look, we're coming up on time here, guys. There's plenty more we could have talked about. I really appreciate your time here. Thanks for sharing all the detail on current trends. And I'm glad to hear everyone safe and sound. Please keep it that way and look forward to following up with you on the next call.

James Kehoe - Walgreens Boots Alliance, Inc. - Executive VP & Global CFO Excellent. Thank you, Justin.

Alexander W. Gourlay - Walgreens Boots Alliance, Inc. - Co-COO Thanks, Justin. Thank you. Good luck.

Justin Lake - Wolfe Research, LLC - MD & Senior Healthcare Services Analyst Thank you, Alex. Thanks, James.

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