In an aerial view, a customer enters a Walgreens store on January 4, 2024 in San Pablo, California.
Justin Sullivan | fake images
Walgreens On Thursday, it reported fiscal third-quarter earnings that missed expectations and cut its full-year adjusted earnings outlook, citing a “challenging” environment for U.S. pharmacies and consumers.
The retail pharmacy giant now expects fiscal 2024 adjusted earnings of between $2.80 and $2.95 per share. That compares with the company's previous outlook of between $3.20 and $3.35 per share.
“'We assumed… that in the second half the consumer would strengthen a little bit,” but “that's not the case,” Walgreens CEO Tim Wentworth told CNBC.
He added that “the consumer is absolutely stunned by the absolute prices of things, and the fact that some of them are not inflating doesn't really change their resistance to current prices. So we've had to get very interested, especially in discretionary things.”
Walgreens shares fell more than 8% in premarket trading Thursday following the results.
Still, Walgreens beat revenue estimates for the quarter thanks to strong performance in its healthcare segment. The company sees that business division as critical to its ongoing effort to transform itself from a major pharmacy chain to a large healthcare company.
The results come as Walgreens works to reduce costs after a difficult last year marked by low pharmacy reimbursement rates, weakened demand for Covid products and a challenging macroeconomic environment.
The company said Friday that it is streamlining its U.S. healthcare portfolio and finalizing plans to close underperforming U.S. stores over several years, among other ongoing efforts to cut costs.
“75% of our stores generate 100% of our profitability today,” Wentworth said. “What that means is that we take a hard look at the others, we're going to finalize an issue that we're going to close…”
Here's what Walgreens reported compared to what Wall Street expected, according to a survey of analysts by LSEG:
- Earnings per share: 63 cents adjusted versus 68 cents expected
- Revenue: $36.4 billion vs. $35.94 billion expected
Walgreens posted sales of $36.4 billion in the quarter, up 2.6% from the same period a year earlier.
The company reported net income of $344 million, or 40 cents per share, during the quarter. That compares with net income of $118 million, or 14 cents per share, during the same period a year ago.
Excluding certain items, adjusted earnings were 63 cents per share for the quarter.
Walgreens did not provide a new revenue forecast for the fiscal year. The company hasn't offered that guidance since October, when it said it expected between $141 billion and $145 billion in sales.
Strong performance in healthcare division
Walgreens reported growth across all three of its business divisions in the fiscal third quarter. But the company's U.S. healthcare unit stood out, as sales rose 7.6% compared to the same period a year earlier.
Segment revenues amounted to $2.13 billion. Analysts had expected sales of $2.08 billion, according to FactSet estimates.
The company said the higher sales reflect primary care provider VillageMD and specialty pharmacy company Shields Health Solutions. Shields sales increased 24% during the period, driven by 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.
Walgreens and VillageMD
Source: Walgreens
Those results come a quarter after Walgreens posted a steep net loss as it recorded a hefty charge of nearly $6 billion related to the decline in value of its investment in VillageMD. The company now plans to close 160 VillageMD clinics, executives announced during the company's fiscal second-quarter earnings conference call in March.
“We are working with their management team to ultimately remain an investor, but significantly reduce our investment and gain some liquidity so we can reinvest in the retail pharmacy business that represents our future,” Wentworth told CNBC on the company's investment. at VillageMD.
Walgreens' U.S. retail pharmacy segment generated $28.5 billion in sales in the fiscal third quarter, an increase of 2.3% from the same period last year. Analysts were expecting sales of $28.34 billion, according to FactSet estimates.
That segment operates more than 8,000 pharmacies throughout the United States, selling prescription and over-the-counter medications, as well as health and wellness, beauty, personal care and food products.
The company said the sales growth came entirely from comparable pharmacy sales and was partially offset by a decline in retail revenue.
Walgreens said pharmacy sales for the quarter increased 4.4% and comparable pharmacy sales increased 5.7% compared to the same period a year ago due to inflation in brand-name drug prices and to the growth of recipes.
Total prescriptions filled in the quarter, including vaccines, amounted to 306.4 million, an increase of 0.5% from the same period last year.
Retail sales for the quarter fell 4% from the same quarter a year ago, and comparable retail sales declined 2.3%. The company pointed to a “difficult” retail environment, among other factors.
Walgreens' international segment, which operates more than 3,000 retail stores overseas, posted sales of $5.73 billion in the fiscal third quarter. That's up 2.8% from the same period a year earlier.
The company said sales at its UK-based pharmacy chain, Boots, grew 1.6%.
Walgreens has reportedly scrapped plans for a possible initial public offering of the subsidiary and is in informal talks with potential buyers, including private equity firms, Bloomberg News reported earlier this month.
But Wentworth said Walgreens has no plans to sell the chain.
“Right now, there's no question that boots are a major contributor for us,” he told CNBC.
— CNBC's Bertha Coombs contributed to this report.
