A sign sits in front of a Walgreens store on November 10, 2023 in Wheeling, Illinois.
Scott Olson | fake images
Walgreens On Tuesday it reported fiscal fourth-quarter sales and adjusted earnings that beat Wall Street expectations, as the company cuts costs in an attempt to extricate itself from a difficult situation.
The retail pharmacy chain also said it plans to close approximately 1,200 stores over the next three years, including 500 in fiscal 2025 alone. The company said those closures will “immediately increase” its adjusted earnings and free cash flow.
Walgreens has about 8,700 stores in the United States, a quarter of which it says are unprofitable.
The company's shares rose about 6% in premarket trading.
The results cap a difficult fiscal 2024 for Walgreens, which is grappling with pharmacy reimbursement pressure, lower consumer spending and challenges related to its push into primary care, among other issues. The company said Tuesday that it surpassed its goal of cutting $1 billion in costs during fiscal 2024, which included closing underperforming stores, laying off employees and using artificial intelligence to make its supply chain more efficient, among other efforts.
In June, Walgreens said it intends to close a “significant” number of its underperforming stores by 2027. Tuesday's announcement appears to be the company's first accurate estimate of how many locations it will close.
Here's what Walgreens reported for the three-month period ended Aug. 31 compared to what Wall Street expected, according to a survey of analysts by LSEG:
- Earnings per share: Adjusted 39 cents versus expected 36 cents
- Revenue: $37.55 billion vs. $35.76 billion expected
Walgreens posted sales of $37.55 billion for the quarter, up 6% from the same period a year earlier.
The company reported a net loss of $3 billion, or $3.48 per share, for the fiscal fourth quarter. That reflects a so-called valuation provision intended to reduce the company's deferred tax assets primarily related to opioid deals.
That compares with a net loss of $180 million, or 21 cents per share, in the same period a year earlier.
Excluding certain items, adjusted earnings were 39 cents per share for the quarter.
The fourth-quarter and full fiscal year results “reflected our disciplined execution on cost management, working capital initiatives and capital spending reduction,” Walgreens CEO Tim Wentworth, who took over, said in a statement. position almost a year ago.
The company's fiscal 2025 guidance was in line with analyst expectations. Walgreens expects growth in its U.S. healthcare and international segments, which will be offset by a decline in its retail pharmacy segment.
Walgreens expects adjusted earnings per share of between $1.40 and $1.80 in the next fiscal year. Analysts project adjusted earnings of $1.75 per share, according to LSEG.
The company also forecasts revenue for the year between $147 billion and $151 billion. Wall Street analysts estimate sales of $147.3 billion.
Growth in the three business units
Walgreens reported growth across all three of its business divisions in the fiscal fourth quarter.
Sales at the company's U.S. healthcare unit rose to $2.11 billion, up 7.1% from the same period a year earlier.
Analysts were expecting sales of $2.1 billion, according to StreetAccount estimates.
That partly reflects the growth of primary care provider VillageMD and specialty pharmacy company Shields Health Solutions. Shields' sales increased 27.8% during the period, which the company attributed to growth within existing partnerships.
Specialty pharmacies are designed to deliver medications with unique handling, storage and distribution requirements, often for patients with complex conditions such as cancer and rheumatoid arthritis.
Notably, Walgreens posted a sharp net loss in the fiscal second quarter as it recorded a hefty charge of nearly $6 billion related to the decline in value of its investment in VillageMD. In August, the company said in a regulatory filing that it was considering selling the supplier.
A sign advertises Covid vaccine injections at a Walgreens pharmacy in Somerville, Massachusetts, on August 14, 2023.
Brian Snyder | Reuters
Walgreens' U.S. retail pharmacy segment generated $29.47 billion in sales in the fiscal fourth quarter, an increase of 6.5% from the same period last year. Analysts were expecting sales of $28.09 billion, according to StreetAccount estimates.
That segment operates the company's pharmacies, which sell prescription and over-the-counter medications, as well as health and wellness, beauty, personal care and food products.
Walgreens said pharmacy sales for the quarter increased 9.6% and comparable pharmacy sales increased 11.7% compared to the same period a year ago due to price inflation for brand-name drugs, among other factors.
Total prescriptions filled in the quarter, including vaccines, amounted to 302 million, an increase of 1.7% from the same period last year. In particular, falling prescription drug reimbursement rates cut into pharmacies' margins, the company said.
Retail sales fell 3.5% from the prior-year quarter and comparable retail sales decreased 1.7%. The company cited a “challenging” retail environment, among other factors.
Walgreens' international unit, which operates more than 3,000 retail stores overseas, posted sales of $5.97 billion in the fiscal fourth quarter. That's an increase of 3.2% from the same period last year.
Analysts were expecting revenue of $5.81 billion for the period, according to StreetAccount.
The company said sales at its UK-based pharmacy chain, Boots, rose 2.3%.
