Walgreens Boots Alliance on Tuesday, full-year earnings estimates were cut as it fell short of Wall Street’s expectations for the fiscal third quarter due to lower consumer spending and a decline in demand for Covid vaccines and tests.
The retail pharmacy chain lowered its earnings forecast to a range of $4.00 to $4.05 per share for the full year, down from its previous forecast of $4.45 to $4.65 per share.
CEO Rosalind Brewer told analysts on the company’s earnings call that she was disappointed by lower earnings expectations 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, given the end of fiscal stimulus and the resumption of student loan payments as potential headwinds.
“Our client is feeling the pressure of higher inflation and interest rates, lower SNAP benefits and tax refunds, and an uncertain economic outlook. They are pulling back on discretionary and seasonal spending and reacting strongly to promotional activity,” said Brewer.
Brewer said she is increasing Walgreen’s cost-cutting initiative to $4.1 billion, including $800 million in savings for fiscal year 2024. The company is also working to increase the profitability of its healthcare segment, she said.
Brewer said while she’s not pleased with Tuesday’s results, Walgreens had the right strategy to drive future growth.
Shares of Walgreens fell about 9% after the release.
Here’s how Walgreens performed in its fiscal third quarter compared to what Wall Street expected based on analyst estimates polled by Refinitiv:
- merits: $1.00 per share adjusted versus $1.07 expected.
- Gain: $35.42 billion, versus $34.24 billion expected.
The missed profit is the first time Walgreens has fallen short of analyst expectations since July 2020.
But the company beat revenue expectations and posted revenue growth, with revenue of $35.4 billion in the quarter — 8.6% higher than revenue of $32.6 billion in the same period a year earlier — driven by growth in the pharmacy and healthcare segments.
Walgreens posted net income of $118 million for the quarter, or 14 cents per share unadjusted, a 59% decrease from the $289 million in revenue the company reported last year for the same quarter. According to the company, the decrease was mainly due to lower operating income.
Walgreens’ U.S. retail pharmacy segment generated approximately $28 billion in sales for the quarter, up 4.4% from the same period last year. Comparable store sales at individual locations increased by 7%.
Walgreens pharmacy sales also increased 6.3% compared to the same quarter last year, with comparable store sales up nearly 10% due to price inflation in branded drugs.
The total number of prescriptions filled in the quarter, including vaccinations, rose 0.1% to a total of 305 million. The number of Covid vaccines administered fell by 83% to 800,000, up from 4.7 million in the same period last year.
“We had declared Covid as a wild card heading into the quarter and have unfortunately seen less willingness from patients to vaccinate,” said Brewer.
Walgreens expects to administer 9 million to 10 million Covid vaccines in 2024, in line with a typical flu season, compared to 12.5 million planned vaccinations in 2023, Brewer said.
Walgreens’ U.S. healthcare segment revenue was $2 billion, up $1.4 billion from the same period last year.
Primary care provider VillageMD, which includes emergency care provider Summit Health, saw sales grow 22%. Revenue at Walgreens’ home care provider CareCentrix rose 15% thanks to additional service offerings.
Still, the healthcare segment suffered a loss of $113 million in the quarter before interest, taxes, depreciation and amortization, driven by an expansion of VillageMD and fewer patient visits to Summit Health CityMD’s urgent care clinics due to a weaker respiratory virus season.
“While we are confident in the reach and scale of our healthcare business, we are disappointed with the pace of our path to profitability,” John Driscoll, president of Walgreens Health Care, told analysts on the company’s Tuesday call.
“We are taking immediate action to improve profitability,” said Driscoll. “We expect this year to continue to be a transitional year as we take action to create value and increase profitability.”