In an aerial view, a customer enters a Walgreens store on January 4, 2024 in San Pablo, California.
Justin Sullivan | Getty Images
Shares of Walgreens plunged more than 14% on Thursday after the company reported fiscal third-quarter revenue that fell short of expectations and lowered its full-year adjusted profit outlook, citing a “challenging” environment for U.S. pharmacies and consumers.
The retail pharmacy giant now expects 2024 adjusted earnings of $2.80 to $2.95 per share. This compares to the company’s previous outlook of between $3.20 and $3.35 per share.
“We assumed that in the second half the consumer would strengthen somewhat,” but “that’s not the case,” Walgreens CEO Tim Wentworth told CNBC.
He added that “the consumer is absolutely stunned by the absolute prices of things, and the fact that some of them may not be inflated doesn’t actually change their resistance to the actual price. So we have to be really keen, especially on things discretionary”.
However, Walgreens topped revenue estimates for the quarter on strong performance in its health care segment. The company sees that business separation as critical to its ongoing push to transform from a large drugstore chain to a major healthcare company.
The results come as Walgreens works to cut costs after a difficult year marked by low pharmacy reimbursement rates, weakening demand for Covid products and a challenging macroeconomic environment.
The company on Friday said it is streamlining its U.S. healthcare portfolio and finalizing plans to close multi-year underperforming U.S. stores, among other ongoing cost-cutting efforts.
“75% of our stores drive 100% of our profitability today,” Wentworth said. “This means that the others we take a look at carefully, we will finalize a number that we will close…”
Here’s what Walgreens reported compared to what Wall Street expected, based on a survey of analysts by LSEG:
- Earnings per share: 63 cents adjusted vs. 68 cents expected
- Income: $36.4 billion versus $35.94 billion expected
Walgreens booked sales of $36.4 billion for the quarter, up 2.6% from the same period a year ago.
The company reported net income of $344 million, or 40 cents per share, for the quarter. That compares with net income of $118 million, or 14 cents per share, for the same period a year ago.
Excluding certain items, adjusted earnings were 63 cents per share for the quarter.
Walgreens did not provide a new revenue forecast for the fiscal year. The company hasn’t provided that guidance since October, when it said it expected $141 billion to $145 billion in sales.
Strong performance in the healthcare sector
Walgreens reported growth in its three business divisions in the fiscal third quarter. But the company’s US healthcare unit stood out, as sales rose 7.6% year-over-year.
Revenue for the segment totaled $2.13 billion. Analysts had expected sales of $2.08 billion, according to estimates compiled by FactSet.
The company said higher sales reflect primary care provider VillageMD and specialty pharmacy company Shields Health Solutions. Shields saw sales increase by 24% during the period, driven by growth within existing partnerships.
Specialty pharmacies are designed to provide medications with unique handling, storage and distribution requirements, often to patients with complex conditions such as cancer and rheumatoid arthritis.
Walgreens and VillageMD
Source: Walgreens
These results come a quarter after Walgreens posted a big net loss after recording a large charge of about $6 billion related to the decline in the value of its VillageMD investment. The company now plans to close 160 VillageMD clinics, executives announced during the company’s fiscal second-quarter earnings call in March.
“We are working with their management team to ultimately still be an investor, but to significantly reduce our investment as well as gain some liquidity so that we can reinvest in the retail pharmacy business that represents the future our,” Wentworth told CNBC of the company’s investment. in the village of MD.
Walgreens’ U.S. retail pharmacy segment generated $28.5 billion in sales in the fiscal third quarter, a 2.3% increase from the same period last year. Analysts had expected sales of $28.34 billion, according to estimates compiled by FactSet.
That segment operates more than 8,000 pharmacies across the US that sell prescription and over-the-counter drugs, as well as health and wellness, beauty, personal care and nutritional products.
The company said the sales increase came entirely from comparable pharmacy sales and was partially offset by a decline in retail revenue.
Walgreens said pharmacy sales for the quarter rose 4.4% and comparable pharmacy sales rose 5.7% compared to the year-ago period due to price inflation on brand name drugs and prescription growth.
Total prescriptions filled during the quarter including vaccines totaled 306.4 million, an increase of 0.5% from the same period a year ago.
Retail sales for the quarter fell 4% from the year-ago quarter, and comparable retail sales fell 2.3%. The company cited a “challenging” retail environment, among other factors.
Walgreens’ international segment, which operates more than 3,000 retail stores abroad, posted $5.73 billion in sales in the fiscal third quarter. This is an increase of 2.8% from the period a year ago.
The company said sales from its UK-based pharmacy chain, Boots, rose 1.6%.
Walgreens reportedly scrapped plans for a possible initial public offering of the subsidiary and is in informal talks with potential buyers, including private equity firms, Bloomberg News reported earlier this month.
But Wentworth said Walgreens has no plans to sell the chain.
“Right now, there’s no doubt that Boots is a big contributor for us,” he told CNBC.
– CNBC’s Bertha Coombs contributed to this report.