of stocks Walgreens Shares plunged more than 20% on Thursday after the company reported weaker-than-expected third-quarter results and sharply cut its full-year adjusted profit outlook, citing a “challenging” environment for pharmacies and U.S. consumers.
The retail pharmacy giant now expects adjusted earnings per share of $2.80 to $2.95 for fiscal 2024. This compares with the company’s previous guidance of $3.20 to $3.35 per share.
“We had assumed that the consumer would show some strength in the second half of the year, but that didn’t happen,” Walgreens CEO Tim Wentworth told CNBC.
He added: “Consumers are completely surprised by the absolute prices of products, and the fact that some products have not increased doesn’t really change consumer resistance to current pricing. So we’ve had to be very aggressive, especially around discretionary products.”
Still, Walgreens beat quarterly sales expectations thanks to strong performance in its health-care division, which the company sees as crucial to its ongoing effort to transform itself from a big drugstore chain into a big health-care company.
The results come as Walgreens works to cut costs after a challenging last year that was hit by lower pharmacy reimbursement rates, weak demand for COVID-related products and a tough macroeconomic environment.
The company said on Friday it was finalizing plans to simplify its U.S. healthcare portfolio and close underperforming U.S. stores over several years as part of its ongoing cost-cutting efforts.
“Currently, 75 percent of our stores drive 100 percent of our revenue,” Wentworth said, “which means we will be carefully evaluating our remaining stores to ultimately determine how many to close.”
Here’s how Walgreens’ reported results for the three months ended May 31 compare to Wall Street expectations, based on LSEG’s analyst survey.
Adjusted earnings per share: 63 cents (expected 68 cents)Revenue: $36.4 billion (expected $35.94 billion)
Walgreens’ third-quarter sales rose 2.6% from the same period last year to $36.4 billion.
The company reported quarterly net income of $344 million, or 40 cents a share, compared with net income of $118 million, or 14 cents a share, in the year-ago period.
Adjusted earnings, excluding certain items, were 63 cents per share for the quarter.
Walgreens did not provide a new revenue forecast for the current fiscal year, which it hasn’t issued since saying in October it expected sales of $141 billion to $145 billion.
Strong performance in the Healthcare sector
Walgreens reported growth across three of its business segments in the third quarter, but its U.S. Healthcare division stood out, with sales up 7.6% compared to the same period last year.
The division had revenue of $2.13 billion. Analysts had expected sales of $2.08 billion, according to estimates compiled by FactSet.
The company said the revenue increase was driven by primary care provider VillageMD and specialty pharmacy company Shields Health Solutions, whose revenue grew 24% during the period due to growth in existing partnerships.
Specialty pharmacies are designed to serve patients with complex conditions, such as cancer or rheumatoid arthritis, and deliver medicines that have unique handling, storage and delivery requirements.
Walgreens and Village MD
Picture from Walgreens
These results come on the heels of a quarter in which Walgreens posted a huge net loss, taking a nearly $6 billion loss related to the declining value of its investment in Village MD. The company now plans to close 160 Village MD clinics, executives announced during the company’s second-quarter earnings call in March.
“We want to work with management to ultimately remain investors while significantly reducing our investment and preserving liquidity so we can reinvest in our retail pharmacy business, which represents our future,” Wentworth told CNBC about his investment in Village MD.
Walgreens’ U.S. retail pharmacy division posted third-quarter sales of $28.5 billion, up 2.3% from the same period a year ago. Analysts were expecting sales of $28.34 billion, according to estimates compiled by FactSet.
The division operates more than 8,000 drug stores across the United States, selling prescription and non-prescription drugs, as well as health and wellness, beauty, personal care and food products.
The company said sales growth was driven entirely by same-store sales at pharmacies, partially offset by lower retail sales.
Walgreens said its pharmacy sales rose 4.4% in the third quarter from a year ago, and same-store sales rose 5.7%, thanks to higher prices for brand-name drugs and rising prescription demand.
Total prescriptions written in the third quarter, including vaccines, were 306.4 million, up 0.5% from the same period last year.
Fourth-quarter retail sales fell 4% compared with the same period a year ago, while same-store sales fell 2.3%, as the company cited a “challenging” retail environment, among other factors.
Walgreens’ international division, which operates more than 3,000 retail stores overseas, reported third-quarter sales of $5.73 billion, up 2.8% from the same period a year ago.
The company said sales at its UK-based drugstore chain Boots increased 1.6%.
Bloomberg News reported earlier this month that Walgreens had backed away from plans for an initial public offering of its subsidiary and was in informal talks with potential buyers, including private equity firms.
But Wentworth said Walgreens has no plans to sell the chain.
“There’s no question that Boots is a major contributor to our company right now,” he told CNBC.
—CNBC’s Bertha Coombs contributed to this report.
