Shares of Walgreens closed more than 20% lower on Thursday after the company reported fiscal third-quarter earnings that missed expectations and lowered its full-year adjusted profit outlook, citing a challenging environment for pharmacies and U.S. consumers. The retail pharmacy giant now forecasts fiscal 2024 adjusted earnings of $2.80 to $2.95 per share, down from its previous outlook of $3.20 to $3.35 per share.
CEO Tim Wentworth stated that they had expected the consumer market to strengthen in the second half of the year, but this has not been the case. He noted that consumers are resistant to current pricing, even for non-inflating items, particularly in discretionary spending.
Despite topping revenue estimates for the quarter due to strong performance in its healthcare segment, Walgreens is working to cut costs following a tough year marked by low pharmacy reimbursement rates, weakening demand for Covid products, and a challenging macroeconomic environment. The company announced plans to simplify its U.S. healthcare portfolio and finalize plans to close underperforming stores over several years as part of ongoing cost-cutting efforts.
For the quarter ending May 31, Walgreens reported earnings per share of 63 cents adjusted, missing the expected 68 cents. Revenue came in at $36.4 billion, surpassing the anticipated $35.94 billion and marking a 2.6% increase from the same period a year ago. Net income for the quarter was $344 million, or 40 cents per share, compared to $118 million, or 14 cents per share, a year earlier.
While the company did not provide a new revenue forecast for the fiscal year, it reported growth across its three business divisions in the third quarter. The U.S. healthcare unit stood out with a 7.6% increase in sales compared to the previous year, reaching $2.13 billion, slightly above analysts’ expectations.
Walgreens highlighted the performance of primary care provider VillageMD and specialty pharmacy company Shields Health Solutions, with Shields seeing a 24% sales increase due to growth within existing partnerships. However, Walgreens plans to close 160 VillageMD clinics following a nearly $6 billion charge related to the decline in value of its investment in VillageMD.
The U.S. retail pharmacy segment generated $28.5 billion in sales in the third quarter, a 2.3% increase from the previous year, driven entirely by comparable pharmacy sales. Pharmacy sales rose 4.4%, and comparable pharmacy sales increased 5.7% due to price inflation in brand medications and prescription growth. Total prescriptions filled, including vaccines, totaled 306.4 million, a 0.5% increase from the same period a year ago.
Retail sales for the quarter fell 4%, with comparable retail sales declining 2.3% due to a challenging retail environment. Internationally, Walgreens’ segment posted $5.73 billion in sales, a 2.8% increase from the previous year, with sales from its U.K.-based drugstore chain, Boots, growing 1.6%. Walgreens has no plans to sell Boots, despite scrapping plans for an initial public offering of the subsidiary.
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