In an aerial view, a customer enters a Walgreens store on January 4, 2024 in San Pablo, California.
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shares Walgreens Shares of the American pharmaceutical company ABC fell by more than 14% today, Thursday, after the company announced profits for the third quarter of the fiscal year, which were lower than expectations and lowered its adjusted profit expectations for the full year, indicating a “difficult” environment for pharmacies and American consumers.
The retail pharmacy giant now expects fiscal 2024 adjusted earnings of between $2.80 and $2.95 per share. This compares to the company's previous forecast of $3.20 to $3.35 per share.
“We assumed … in the second half that the consumer would be somewhat stronger,” Walgreens CEO Tim Wentworth told CNBC, but “that’s not the case.”
He added, “The consumer is quite surprised by the absolute prices of things, and the fact that some of them may not inflate doesn't really change their resistance to current pricing. So we've had to be really careful, especially on discretionary matters.”
However, Walgreens topped revenue estimates for the quarter thanks to strong performance in its healthcare segment. The company sees this business division as critical to its ongoing efforts to transform from a major pharmacy chain into a major healthcare company.
These results come as Walgreens works to cut costs after a difficult year last year marked by low pharmacy reimbursement rates, weak demand for Covid products, and a difficult macroeconomic environment.
The company said Friday it is working to simplify its U.S. healthcare portfolio and finalizing plans to close underperforming U.S. stores over several years, among other ongoing cost-cutting efforts.
“75 percent of our stores are 100 percent profitable today,” Wentworth said. “What that means is we’re taking a hard look at the others, and we’re going to finalize the number that we’re going to close.”
Here's what Walgreens reported for the three-month period ending May 31 compared to what Wall Street was expecting, based on a survey of analysts conducted by LSEG:
Earnings per share: 63 cents adjusted vs. 68 cents expected Revenue: $36.4 billion vs. $35.94 billion expected
Walgreens reported sales of $36.4 billion for the quarter, up 2.6% from the same period last year.
The company reported net income of $344 million, or 40 cents per share, during the quarter. This compares to net income of $118 million, or 14 cents per share, for the same period last year.
Excluding certain items, adjusted earnings were 63 cents per share during the quarter.
Walgreens did not provide new revenue forecasts for the fiscal year. The company has not provided this guidance since October, when it said it expected sales of $141 billion to $145 billion.
Strong performance in the healthcare department
Walgreens reported growth across its three business divisions in its fiscal third quarter. But the company's US healthcare unit stood out, with sales jumping 7.6% compared to the same period last year.
This sector's revenues amounted to $2.13 billion. Analysts had expected sales of $2.08 billion, according to estimates compiled by FactSet.
The company said the sales rise reflects primary care provider VillageMD and specialty pharmacy company Shields Health Solutions. Shields' sales saw a 24% jump during this period, driven by growth within existing partnerships.
Specialty pharmacies are designed to deliver medications with unique handling, storage and distribution requirements, often to patients with complex conditions such as cancer and rheumatoid arthritis.
Walgreens and Village MD
Source: Walgreens
The results come a quarter after Walgreens posted a sharp net loss as it posted a massive charge of about $6 billion related to the impairment of its investment in VillageMD. The company now plans to close 160 VillageMD clinics, executives announced during the company's fiscal second-quarter earnings call in March.
“We are working with their management team to ultimately remain invested, but we are purposefully reducing our investment as well as getting some liquidity so we can invest back in the retail pharmacy business that is our future,” Wentworth told CNBC of the company's investment. At VillageMD.
Walgreens' U.S. retail pharmacy segment generated sales of $28.5 billion 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 estimates compiled by FactSet.
This segment operates more than 8,000 pharmacies across the United States, which sell prescription drugs and other health, beauty, personal care, and nutritional products.
The company said 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 earlier due to price inflation on brand-name drugs and prescription growth.
Total prescriptions dispensed in this quarter, including vaccines, were 306.4 million, an increase of 0.5% over the same period last year.
Retail sales for the quarter were down 4% compared to the previous quarter, and comparable retail sales were down 2.3%. The company cited the “challenging” retail environment, among other factors.
Walgreens' international segment, which operates more than 3,000 retail stores abroad, generated sales of $5.73 billion in its fiscal third quarter. This represents an increase of 2.8% over the same period last year.
The company said that sales of its UK drugstore chain, Boots, rose by 1.6%.
Walgreens has reportedly canceled plans for a potential initial public offering for 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 doubt that Boots is a major shareholder of ours,” he told CNBC.
— CNBC's Bertha Combs contributed to this report.
