Walgreens stock experienced a significant drop of over 20% on Thursday after the company announced fiscal third-quarter earnings that fell short of expectations. The company also revised its adjusted profit outlook downward, citing a “challenging” environment for pharmacies and U.S. consumers. Walgreens anticipates fiscal 2024 adjusted earnings of $2.80 to $2.95 per share, down from the previous projection of $3.20 to $3.35 per share.
Struggles Amid High Prices
Walgreens CEO Tim Wentworth explained the company’s challenges, stating, “We assumed … in the second half that the consumer would get somewhat stronger,” but “that is not the case.” He added, “The consumer is absolutely stunned by the absolute prices of things, and the fact that some of them may not be inflating doesn’t change their resistance to the current pricing. So we’ve had to get really keen, particularly in discretionary things.”
Revenue Success Despite Profit Struggles
Despite the profit guidance cut, Walgreens exceeded revenue estimates for the quarter, driven by solid performance in its health-care segment. The company sees this division as critical to transforming from a major drugstore chain into a sizeable health-care company. Walgreens reported revenue of $36.4 billion for the quarter, up 2.6% from the same period a year ago, surpassing Wall Street’s expectations of $35.94 billion.
Cost-Cutting Measures and Store Closures
Walgreens is taking significant steps to slash costs following a challenging year marked by low pharmacy reimbursement rates, weakening demand for COVID products, and a challenging macroeconomic environment. The company is simplifying its U.S. health-care portfolio and plans to close underperforming U.S. stores over multiple years. “Seventy-five percent of our stores drive 100% of our profitability today,” Wentworth noted. “What that means is the others we take a hard look at, we are going to finalize a number that we will close.”
Third-Quarter Performance and Future Outlook
For the three months ended May 31, Walgreens reported adjusted earnings of 63 cents per share, falling short of analysts’ expectations of 68 cents per share. The company’s net income for the quarter was $344 million, or 40 cents per share, up from $118 million, or 14 cents per share, in the same period last year. However, Walgreens did not provide a new revenue forecast for the fiscal year.
Health-Care Division Leads Growth
The U.S. healthcare unit stood out in Walgreens’ third-quarter performance, with sales jumping 7.6% compared to a year ago. Revenue for this segment reached $2.13 billion, exceeding analysts’ expectations of $2.08 billion. The higher sales were attributed to primary care provider VillageMD and specialty pharmacy company Shields Health Solutions, which saw a 24% sales increase.
Retail Pharmacy Segment Shows Resilience
Walgreens’ U.S. retail pharmacy segment generated $28.5 billion in sales in the fiscal third quarter, an increase of 2.3% from last year. This growth was driven entirely by comparable pharmacy sales, which rose 4.4%, and comparable retail sales, which increased 5.7% compared to the previous year. Total prescriptions filled in the quarter, including vaccines, totaled 306.4 million, a 0.5% increase from the same period a year ago.
International Segment Steady
Walgreens’ international segment, which operates over 3,000 retail stores abroad, posted $5.73 billion in sales in the fiscal third quarter, a 2.8% increase from the year-ago period. Sales from the U.K.-based drugstore chain Boots grew by 1.6%. Despite reports of scrapping plans for a potential initial public offering of the subsidiary, Wentworth confirmed that Walgreens has no plans to sell Boots, emphasizing its major contribution to the company.
Despite the challenges, Walgreens is focusing on its strengths in the health-care segment and implementing strategic cost-cutting measures. The company remains committed to transforming into a large health-care entity while navigating the current economic landscape.
