Walgreens Stock Plummets as Chain Pharmacies Slash Profits in Challenging Consumer Environment

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In an aerial view, a customer is seen entering a Walgreens store in Santa Barbara, California on January 4, 2024. Justin Sullivan | Getty Images
Walgreens’ stock price plummeted over 14% on Thursday, after the company reported lower-than-expected profit for the third fiscal quarter and slashed its full-year adjusted profit outlook by a significant margin, citing a “challenging” environment for drugstores and U.S. consumers. The retail pharmacy giant now expects adjusted earnings per share for the 2024 fiscal year to be between $2.80 and $2.95. This compares to the company’s previous anticipation of $3.20 to $3.35 per share. Walgreens CEO Tim Wentworth told CNBC, “We thought…consumers would get stronger in the second half,” but “the fact is they haven’t.” He added, “Consumers are shocked by the absolute prices of goods, some of which may not have inflation, which actually does not change their resistance to current pricing. So we have to be very enthusiastic, especially in non-essential goods.” Nevertheless, Walgreens’ strong performance in the healthcare sector exceeded revenue expectations for the quarter. The company believes that the business sector is crucial to its ongoing efforts to transition from a large chain of drugstores to a major healthcare company. As these results come out, Walgreens is striving to reduce costs. The company said on Friday that it is streamlining its U.S. healthcare investment portfolio and is finalizing plans to close underperforming U.S. stores over the next few years, as well as other ongoing cost-cutting efforts. “75% of our stores drive 100% of our profitability today,” Wentworth said. “This means we will seriously look at other aspects, and we will eventually determine a number we will close…”
Here are Walgreens’ reports according to analysts surveyed by LSEG, compared to Wall Street’s expectations: Earnings per share: adjusted to 63 cents, expected 68 cents Revenue: $36.4 billion, expected $35.94 billion Walgreens’ net sales for the quarter were $36.4 billion, up 6% from the same period last year. The company reported net income of $3.44 billion, or 40 cents per share, for the quarter. By comparison, net income for the same period last year was $1.18 billion, or 14 cents per share. Excluding certain items, adjusted earnings for the quarter were 63 cents per share. Walgreens did not provide new fiscal year revenue forecasts. The company has not provided this guidance since October, when it said it expected sales of $141 billion to $145 billion.
Strong Performance in Healthcare Sector
Walgreens reported growth in all three business sectors for the third fiscal quarter. However, the company’s healthcare sector in the U.S. stood out, with sales increasing by 7.6% compared to the same period last year. The sector’s revenue was $21.3 billion. Analysts had previously expected sales of $20.8 billion, according to FactSet. The company said that the sales growth reflected the situation at primary care provider VillageMD and specialty pharmacy company Shields Health Solutions. During this period, sales of Shields grew by 24% driven by growth from existing partnerships. Specialty pharmacies are designed to provide drugs with specific handling, storage, and distribution requirements, typically for patients with complex diseases such as cancer and rheumatoid arthritis.
Walgreens and VillageMD Source: Walgreens
One quarter ago, Walgreens recorded nearly $6 billion in charges due to the diminished value of its investment in VillageMD, resulting in a massive net loss. The company’s management announced during the second fiscal quarter earnings call in March that it now plans to close 160 VillageMD clinics. “We’re working with their management teams, ultimately still an investor, but meaningfully reducing our investment and getting some liquidity so we can reinvest in what represents our future, the retail pharmacy business,” Wentworth told CNBC regarding the company’s investment in VillageMD. Walgreens’ U.S. retail pharmacy sector had sales of $28.5 billion for the third quarter, up 2.3% from the same period last year. Analysts had previously expected sales of $28.34 billion, according to FactSet. The sector operates over 8,000 pharmacies in the U.S., selling prescription and over-the-counter drugs as well as health, beauty, personal care, and food products. The company said that the sales growth came entirely from comparable pharmacy sales, partially offset by a decline in retail revenue. Walgreens stated that pharmacy sales for the quarter grew 4.4% from the same period last year due to the rising prices of brand-name drugs and prescription growth, with comparable pharmacy sales growing by 5.7%. The number of prescriptions, including vaccines, for the quarter was 306.4 million, up 0.5% from the same period last year. Retail sales for the quarter fell 4% from the previous year, with comparable retail sales falling 2.3%. The company pointed out that the retail environment is “challenging,” among other factors. Walgreens’ international division operates over 3,000 retail stores outside the U.S., with sales of $5.73 billion for the third quarter, up 2.8% from the same period last year. The company said that sales growth was driven by a 16% increase in sales at its chain pharmacy Boots in the U.K. Earlier this month, Bloomberg News reported that Walgreens had scrapped plans for a potential IPO of the subsidiary and was in informal talks with potential buyers, including private equity firms. However, Wentworth said that Walgreens did not have plans to sell the chain. “Boots is our main contributor now, no doubt,” he told CNBC. CNBC’s Bertha Coombs contributed to this report.