* Adjusted first quarter net earnings attributable to Walgreens Boots Alliance per diluted share increase 32.1 percent to $1.03 compared with the year-ago period; GAAP net earnings attributable to Walgreens Boots Alliance per diluted share increase 13.5 percent to $1.01

* Adjusted first quarter net earnings attributable to Walgreens Boots Alliance increase 51.1 percent to $1.1 billion compared with the year-ago period; GAAP net earnings attributable to Walgreens Boots Alliance increase 30.6 percent to $1.1 billion

* GAAP operating cash flow totals $732 million in the quarter, while free cash flow totals $392 million

* Company raises by 5 cents per share its low end of guidance for fiscal year 2016 anticipated adjusted net earnings per diluted share attributable to Walgreens Boots Alliance to $4.30 to $4.55

[Deerfield, Ill., Jan. 7] – Walgreens Boots Alliance Inc. today announced financial results for the first quarter 2016 that ended 30 November 2015.

Executive Vice Chairman and CEO Stefano Pessina said, “The year has started with a comparatively strong first quarter, as we expected. Our ongoing work to control costs across Walgreens Boots Alliance and improve adjusted operating income margins is growing earnings overall. Although it is early in the year, we are on track to deliver against our expectations.

“The work to renew and update our businesses, in order to meet the opportunities and challenges of our ever-changing markets, is a core strength that we must embrace as routine across our enterprise. Our ability to deploy tools and strategies that address these dynamics, generating continued growth across Walgreens Boots Alliance, and the commitment I see from our team give me confidence that we will deliver what we have signaled for 2016 and beyond.”

Overview of First Quarter Results

Fiscal 2016 first quarter net earnings attributable to Walgreens Boots Alliance determined in accordance with GAAP increased 30.6 percent to $1.1 billion compared with the same quarter a year ago, while GAAP net earnings attributable to Walgreens Boots Alliance per diluted share increased 13.5 percent to $1.01 compared with the same quarter a year ago.

Adjusted fiscal 2016 first quarter net earnings attributable to Walgreens Boots Alliance1 increased 51.1 percent to $1.1 billion compared with the same quarter a year ago. Adjusted net earnings attributable to Walgreens Boots Alliance per diluted share for the quarter increased 32.1 percent to $1.03 compared with the same quarter a year ago. Fiscal 2016 first quarter earnings adjustments were a net increase to GAAP net earnings attributable to Walgreens Boots Alliance of $22 million or 2 cents per diluted share.

Net sales in the first quarter increased 48.5 percent to $29.0 billion compared with the same quarter a year ago, largely due to the inclusion of Alliance Boots consolidated results.

Combined net synergies in the fiscal 2016 first quarter were $288 million. The company continues to expect to reach at least $1.0 billion in combined net synergies in fiscal 2016 relating to the strategic combination with Alliance Boots. This excludes the synergy benefits related to the company’s strategic, long-term relationship with AmerisourceBergen, the benefits of refinancing the legacy Alliance Boots indebtedness at a lower cost and the proposed Rite Aid acquisition.

Walgreens Boots Alliance GAAP operating cash flow totaled $732 million in the first quarter, while the company generated free cash flow of $392 million in the quarter.

Rite Aid Acquisition

Walgreens Boots Alliance’s proposed acquisition of Rite Aid Corporation is progressing as planned. The transaction, which was announced 27 October 2015, is subject to the approval of Rite Aid’s stockholders, the expiration or termination of applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and other customary closing conditions.

Rite Aid has scheduled a special meeting of its stockholders for 4 February 2016 to, among other things, consider and vote on a proposal to approve the Agreement and Plan of Merger related to the proposed acquisition.

As a standard part of the regulatory process in connection with the Federal Trade Commission’s (FTC) review, Walgreens Boots Alliance and Rite Aid last month each received, as expected, a request for additional information from the FTC in connection with the proposed acquisition.

Walgreens Boots Alliance continues to expect the transaction to close in the second half of calendar 2016.

The company’s integration planning continues. In addition, in connection with the acquisition, the company last month completed the placement of $5 billion term loan facilities and the syndication of a new $7.8 billion bridge facility. These new facilities replaced the company’s previously reported $12.8 billion bridge facility commitment. Drawing under the facilities is subject to the closing of the acquisition.

Company Outlook

The company is raising by 5 cents per share its low end of guidance for fiscal year 2016 anticipated adjusted net earnings per diluted share attributable to Walgreens Boots Alliance to $4.30 to $4.55.

This guidance continues to assume no material accretion from the proposed acquisition of Rite Aid.

Business Segment Highlights

Retail Pharmacy USA:

The Retail Pharmacy USA division, whose principal retail pharmacy brands are Walgreens and Duane Reade, had first quarter total sales of $20.4 billion, an increase of 4.2 percent over the year-ago quarter. Sales in comparable stores increased 5.8 percent compared with the same quarter a year ago.

Pharmacy sales, which accounted for 68.4 percent of division total sales in the quarter, increased 6.7 percent compared with the year-ago quarter, while comparable pharmacy sales increased 9.3 percent. The company attributed the increase in pharmacy sales in part to growth in Medicare Part D and an increase in focus on pharmacy customer care.

The division filled 231 million prescriptions (including immunizations) adjusted to 30-day equivalents in the quarter, an increase of 4.1 percent over last year’s first quarter, while the reported incidence of flu across the USA declined 10.7 percent compared with the year-ago quarter, according to IMS Health. Prescriptions filled in comparable stores increased 4.7 percent compared with the same quarter last year. The division’s retail prescription market share on a 30-day adjusted basis in the first quarter increased approximately 20 basis points over the year-ago quarter to 19.2 percent, as reported by IMS Health. Walgreens new U.S. fulfillment agreements with Valeant Pharmaceuticals International Inc., announced on 15 December 2015, are expected to enhance the division’s pharmacy market share growth as the agreements are rolled out in calendar 2016.

Comparable retail sales decreased 0.6 percent in the first quarter primarily due to a reduction in unprofitable promotions and the transitioning of seasonal items away from holiday decorations and toward higher quality, giftable items.

Adjusted gross profit dollars for the division grew $143 million to $5.5 billion compared with the same quarter a year ago. At the same time, gross profit margins were negatively impacted, as expected, by lower pharmacy reimbursement rates, an increase in Medicare Part D prescriptions and the mix of specialty medications.

Adjusted first quarter selling, general and administrative expenses in the division decreased by $89 million, or 2.1 percent, compared with the year-ago quarter. The strong cost control resulted from good progress within the division as part of Walgreens Boots Alliance’s previously announced $1.5 billion cost transformation program, designed to restructure and invest in the company’s future in a way that is better for customers and simpler for employees, resulting in a faster and more agile company.

The division’s GAAP operating income in the fiscal 2016 first quarter decreased 2.5 percent over the year-ago quarter to $1.0 billion. Adjusted operating income in the first quarter increased 11.2 percent over the year-ago quarter to $1.2 billion.

The fiscal 2016 first quarter for the Retail Pharmacy USA division includes results of operations, the allocation of synergy benefits including Walgreens Boots Alliance Development GmbH (WBAD) and an allocation of combined corporate costs. The fiscal 2015 first quarter included all corporate costs of Walgreen Co., the full consolidated results of WBAD and equity income from Walgreen Co.’s pre-closing 45 percent interest in Alliance Boots. Excluding the impact from Alliance Boots equity income, the division’s adjusted operating income in the first quarter increased 22.9 percent over the year-ago quarter.

Retail Pharmacy International:

The Retail Pharmacy International division, whose principal retail brands are Boots in the UK, Thailand, Norway, the Republic of Ireland and The Netherlands, Benavides in Mexico and Ahumada in Chile, had first quarter total sales of $3.5 billion. On a pro forma constant currency basis, comparable store sales in the first quarter increased 2.2 percent compared with the same period a year ago, with particularly strong growth in Mexico and the Republic of Ireland.

Comparable pharmacy sales increased 3.8 percent in the first quarter compared with last year’s first quarter, driven by good growth in dispensing and pharmacy services in the UK and Mexico.

Comparable retail sales increased 1.3 percent in the quarter compared with the same period a year ago, with strong growth in Ireland. Boots UK also grew due to good performances in retail healthcare and beauty, supported by continued growth in boots.com.

GAAP operating income was $302 million, while adjusted operating income was $315 million.

Pharmaceutical Wholesale:

The Pharmaceutical Wholesale division, which mainly operates under the Alliance Healthcare brand, had first quarter total sales of $5.8 billion. On a pro forma constant currency basis and excluding acquisitions and dispositions, comparable sales increased 3.1 percent compared with the same period a year ago. Sales growth in the quarter was particularly strong in Norway, while solid growth continued in Germany and Turkey, two of the division’s largest markets.

GAAP operating income was $143 million, while adjusted operating income was $166 million.

Comparability of Results

Walgreens Boots Alliance has organized its operations and reports results in three segments: Retail Pharmacy USA, Retail Pharmacy International and Pharmaceutical Wholesale. Segmental reporting includes the allocation of synergy benefits, including WBAD’s results, and the combined corporate costs for periods subsequent to 31 December 2014. The company has determined that it is impracticable to allocate historical results to the current segmental presentation.

Following the combination, the company eliminated the three-month reporting lag and recast prior period results with no lag. The combination on 31 December 2014 also means fiscal year 2015 reporting includes the results of Alliance Boots for eight months (January through August 2015) on a fully consolidated basis and four months (September through December 2014) as equity income from Walgreen Co.’s pre-closing 45 percent interest.

The company’s balance sheet reflects the full consolidation of Alliance Boots assets and liabilities as a result of the close of the combination on 31 December 2014. The company’s purchase accounting remains preliminary as contemplated by U.S. generally accepted accounting principles (GAAP) and, as a result, there may be upon further review future changes to the value, as well as allocation, of the acquired assets and liabilities, associated amortization expense, goodwill and the gain on the previously held equity interest.

Year-over-year comparisons of results require consideration of the foregoing factors and are not directly comparable.