A sign indicates the types of COVID-19 vaccine doses available at a Walgreens mobile bus clinic in Los Angeles, California, on June 25, 2021.
Mario Tama | Getty Images
The retail pharmacy giant – squeezed by the transition out of the Covid pandemic, a leadership change, its shaky foray into healthcare and recent work pressure of pharmacy employees – has now fallen short of Wall Street’s adjusted earnings expectations for two quarters in a row. The last time Walgreens posted a consecutive profit decline was nearly a decade ago.
Still, Walgreens reported narrower losses and progress on its cost-cutting plans. The company also saw sales growth in its healthcare business, which is now a central part of the company’s business strategy. Shares of Walgreens closed 7% higher on Thursday. The stock was down more than 39% at the start of the year.
The quarterly results came two days after Walgreens named health care industry veteran Tim Wentworth as its new CEO following the abrupt departure of the company’s former top executive, Roz Brewer, last month. Wentworth, who takes office on October 23, will be tasked with leading the pharmacy giant out of its difficult situation.
“I have worked with Walgreens as a customer partner, competitive investor and family member and understand the challenges that lie ahead,” said Wentworth, the former CEO of Cigna‘s Pharmacy Benefits Management Company said during Thursday’s conference call.
Wentworth also praised the company’s pharmacy staff, telling a brief story about how an employee at a New York location helped fill his mother’s prescription for essential medications. However, he did not mention the three-day strikes that pharmacists and pharmacy technicians held this week to protest chronic staffing shortages and other poor working conditions.
The company expects adjusted earnings per share of $3.20 to $3.50 for the coming fiscal year, below analysts’ estimate of $3.72. Walgreens expects lower Covid-related sales, along with a higher tax rate and lower sale-and-leaseback contributions, to offset profit growth.
Walgreens also expects sales of $141 billion to $145 billion for the year. Wall Street analysts estimated sales at more than $144 billion.
“We see a continuation of the challenging trends that have impacted us in 2023,” interim CFO Manmohan Mahajan said during a conference call Thursday, noting that the company is “taking a prudent approach.”
Mahajan added that Walgreens expects higher levels of shrinkage or lost inventory in the coming fiscal year, which has increased for the company in recent months and continues to be a serious systemic problem across the retail industry.
However, interim CEO Ginger Graham noted during the conference call that the company expects to save over $1 billion in the next fiscal year due to its ongoing cost-cutting initiative, which includes closing unprofitable stores and using AI to increase supply chain efficiency expected.
Here’s what Walgreens reported compared to Wall Street’s expectations, based on a survey of analysts by LSEG, formerly known as Refinitiv:
- Earnings per share: 67 cents adjusted versus 69 cents expected
- Revenue: $35.42 billion versus expected $34.78 billion
The company reported a fiscal fourth-quarter net loss of $180 million, or 21 cents per share. By comparison, net loss in the same period last year was $415 million, or 48 cents per share. Excluding certain items, adjusted earnings per share for the quarter were 67 cents.
Mahajan said the loss was due to costs related to certain legal and regulatory approvals and settlements, as well as one-time costs related to Walgreens’ cost-cutting program.
Walgreens reported revenue of $35.42 billion in the quarter, up about 9% from the year-ago period, driven by growth in its U.S. retail pharmacy and international business segments.
Sales in the company’s U.S. healthcare division also increased. Walgreens noted in a press release that the company is “focused on increasing the profitability of this segment going forward.”
Walgreens has made significant investments to transform itself from a large drugstore chain into a large healthcare company.
However, the pharmacy chain is facing a number of challenges in this transition, including a profit squeeze due to weaker consumer spending and declining demand for Covid products as patients emerge from the pandemic. Walgreens is also facing an open revolt among pharmacists and pharmacy technicians demanding better working conditions.
Three segments recorded sales growth
Walgreens’ U.S. pharmacy segment generated revenue of $27.66 billion in the fiscal fourth quarter, up 3.7% from the same period last year. Comparable sales at individual locations increased by 5.7%.
Pharmacy sales increased 6.4% in the quarter compared to the fourth fiscal quarter of 2022, with comparable sales increasing more than 9% due to branded drug price inflation and mix impacts.
Total prescriptions filled in the quarter, including vaccinations, fell 0.5% to 297 million. Walgreens cited a weaker respiratory virus season this fall, dampening demand for medicines and vaccines.
Mahajan said the company administered around 400,000 Covid vaccines in the quarter, up from 2.9 million in the same period last year.
Retail sales fell 4.3% in the quarter compared to the same period last year, and comparable retail sales fell 3.3%.
Mahajan said retail sales were hit by a decline in demand for over-the-counter Covid tests, weaker cough, cold and flu sales and weaker consumer spending. He added that increased shrinkage negatively impacted sales of health and wellness products, as well as personal care and beauty products.
Meanwhile, the company’s international segment posted revenue of $5.78 billion in the fiscal fourth quarter, up more than 12% from the same period last year.
Mahajan said this reflected growth across all international markets, with sales at the company’s UK subsidiary Boots growing by almost 11%.
Sales in Walgreens’ U.S. healthcare segment were $1.97 billion, up from $622 million in the same period last year. Operating loss narrowed from $338 million to $294 million.
Primary care provider VillageMD, which includes urgent care provider Summit Health, reported 17% revenue growth. Walgreens said this reflects “the existing clinic growth and expansion of the clinic footprint” of VillageMD, which has a network of hundreds of full-service medical practices across the United States
Sales at CareCentrix, which coordinates home care for patients after they are discharged from the hospital, rose 24% due to additional service offerings and expansion into additional markets.
The healthcare segment reported a loss before interest, taxes, depreciation and amortization of $30 million in the quarter, compared to a loss of $133 million in the same period last year.
Walgreens said the “improvement” was driven by growth at CareCentrix and Shields Health Solutions, a specialty pharmacy company in the healthcare segment.
However, John Driscoll, president of its U.S. healthcare business, said the company was “not satisfied with the near-term return on our investments” in the segment.
“We will continue to grow in 2024, but with a renewed focus on more profitable growth,” he said during the earnings call.
Correction: Walgreens’ total number of prescriptions filled in the quarter, including vaccinations, fell 0.5% to 297 million. A previous version misstated a number.