Walgreen’s Boots Alliance On Tuesday, the company lowered its full-year earnings guidance as it fell short of Wall Street expectations for the fiscal third quarter on the back of lower consumer spending and a slowdown in demand for Covid vaccines and tests.
The retail pharmacy chain lowered its full-year earnings guidance to a range of $4.00 to $4.05 per share, down from its previous guidance of $4.45 to $4.65 per share.
CEO Rosalind Brewer told analysts during the company’s earnings call that she was disappointed with the reduced earnings guidance for the year.
Brewer said weak demand for Covid vaccines and lower consumer spending are likely to continue into next year. She said the company is closing the deal and views the end of fiscal stimulus and the resumption of student loan payments as potential headwinds.
“Our customers are feeling the strain of higher inflation and interest rates, lower SNAP benefits and tax refunds, and an uncertain economic outlook. They’re cutting back on discretionary and seasonal spending and are highly responsive to promotional activity,” Brewer said.
Brewer said it’s increasing Walgreen’s cost-cutting initiative to $4.1 billion, which includes savings of $800 million for fiscal 2024. The company is also working to increase the profitability of its healthcare segment, she said.
Brewer said while she wasn’t happy with Tuesday’s results, Walgreens has the right strategy to drive future growth.
Walgreens shares fell about 9% after the release.
Here’s how Walgreens performed versus Wall Street’s expectations for the fiscal third quarter, based on analyst estimates polled by Refinitiv:
- Merits: Adjusted $1.00 per share versus $1.07 expected.
- Revenue: $35.42 billion versus $34.24 billion expected.
The earnings shortfall marks the first time since July 2020 that Walgreens has fallen short of analysts’ expectations.
But the company beat sales expectations and posted revenue growth. It posted revenue of $35.4 billion for the quarter — up 8.6% from revenue of $32.6 billion for the same period last year — on growth in its retail pharmacy and healthcare segments.
Walgreens posted net income of $118 million, or 14 cents a share (unadjusted), for the quarter, down 59% from the profit of $289 million the company reported in the year-ago quarter. According to the company, the decline is mainly due to lower operating income.
Walgreens’ U.S. pharmacy segment generated revenue of about $28 billion in the quarter, up 4.4% from the prior-year period. Comparable sales at individual locations increased by 7%.
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Walgreens’ pharmacy sales also rose 6.3% compared to the year-ago quarter, with comparable sales rising nearly 10% on brand-name drug price inflation.
The total number of prescriptions filled in the quarter, including vaccines, increased 0.1% to a total of 305 million. The number of Covid vaccines administered fell by 83% to 800,000 in that period, compared to 4.7 million in the same period last year.
“We had designated Covid as a wildcard at the beginning of the quarter and unfortunately found that patients were less willing to vaccinate,” said Brewer.
Walgreens expects to administer 9 million to 10 million Covid vaccines in 2024, equivalent to a typical flu season, compared to 12.5 million projected vaccinations in 2023, Brewer said.
Walgreen’s US healthcare segment revenue was $2 billion, up $1.4 billion from the same period last year.
Primary care provider VillageMD, which also owns emergency services provider Summit Health, saw its revenue grow 22%. Walgreens home health care provider CareCentrix’s revenue rose 15% on additional service offerings.
Still, the healthcare segment posted a loss of $113 million before interest, taxes, depreciation and amortization for the quarter, driven by expansion at VillageMD and fewer patient visits at Summit Health’s CityMD emergency clinics due to a weaker respiratory virus season.
“While we are confident in the scale and scope of our healthcare business, we are disappointed with the speed of our path to profitability,” John Driscoll, president of Walgreens’ healthcare business, told analysts during the company’s conference call Tuesday.
“We are taking immediate action to increase profitability,” said Driscoll. “We expect this year to remain a transitional year as we take action to add value and increase profitability.”
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