Walgreens Stock Plummets as Chain Pharmacies Slash Profits in Challenging Consumer Environment

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In an aerial view, a customer enters a Walgreens store in Santa Barbara, California on January 4, 2024. Justin Sullivan | Getty Images
Walgreens stock fell more than 14% on Thursday after the company posted third-quarter profits below expectations and significantly lowered its full-year adjusted profit outlook, citing a “challenging” environment for pharmacies and American consumers. The retail pharmacy giant now expects adjusted earnings per share for the 2024 fiscal year of $2.80 to $2.95. That’s down from a previous forecast of $3.20 to $3.35 per share. Walgreens CEO Tim Wentworth told CNBC, “We thought… consumers would get stronger in the latter half of the year,” but “that’s not the case.” He added, “Consumers are shocked at the absolute price of goods, some of which may not have inflated, this actually doesn’t change their resistance to current pricing. So we have to be very aggressive, particularly in non-essential items.” Despite this, Walgreens saw strong performance in its healthcare segment, exceeding revenue expectations for the quarter. The company believes this business segment is critical to its ongoing transformation from a large pharmacy chain to a large healthcare company. This came as Walgreens is working to cut costs. The company said it is simplifying its U.S. healthcare investment portfolio and will ultimately identify plans to close underperforming U.S. stores in the coming years, as well as other cost-cutting efforts. Wentworth said, “75% of our stores are driving 100% of our profitability today.” “That means we’re going to be very thoughtful about other aspects, and we will ultimately identify a number that we will close…” Here’s Walgreens’ report compared to Wall Street expectations based on a survey of analysts by LSEG: Adjusted earnings: 63 cents per share vs. an expected 68 cents Revenue: $36.4 billion vs. an expected $35.94 billion Walgreens reported sales of $36.4 billion for the quarter, up 6% from the same period last year. The company reported net income for the quarter of $3.44 billion, or 40 cents per share. That’s up from $1.18 billion, or 14 cents per share, in the same period last year. Adjusted earnings for the quarter, excluding certain items, were 63 cents per share. Walgreens did not provide new fiscal year revenue forecasts. The company has not offered guidance since October when it said it expected sales of $141 billion to $145 billion. Strong performance in healthcare
Walgreens reported growth in all three of its business segments in the third quarter. But the company’s healthcare segment in the U.S. stood out, with sales up 7.6% from the same period last year. The segment’s revenue was $21.3 billion. Analysts had expected sales of $20.8 billion, according to FactSet. The company said the sales growth reflects the performance of primary care provider VillageMD and specialty pharmacy company Shields Health Solutions. During the period, sales at Shields grew 24% driven by growth from existing partnerships. The specialty pharmacy aims to provide drugs with unique handling, storage and distribution requirements, typically for patients with complex conditions such as cancer and rheumatoid arthritis. A quarter ago, Walgreens recorded a nearly $6 billion charge for the diminished value of its investment in VillageMD, leading to a massive net loss. The company’s executives said in March at the second-quarter earnings call that it now plans to close 160 VillageMD clinics. Speaking about the company’s investment in VillageMD, Wentworth told CNBC, “We are working with their management team and are ultimately still an investor, but meaningfully reducing our investment and getting some liquidity to be able to reinvest in our retail pharmacy business, which represents our future.” Walgreens’ U.S. retail pharmacy segment posted sales of $28.5 billion for the quarter, a 2.3% increase from the same period last year. Analysts had expected sales of $28.34 billion, according to FactSet. The segment operates more than 8,000 pharmacies in the U.S., selling prescription and non-prescription drugs as well as health, beauty, personal care and food items. The company said the sales growth came entirely from comparable pharmacy sales, partly offset by declining retail revenue. Walgreens said its pharmacy sales for the quarter grew 4.4% from the same period last year, and comparable pharmacy sales grew 5.7%. Prescription volume, including vaccines, for the quarter was 3.064 billion, up 0.5% from the same period last year. Retail sales for the quarter decreased 4% from the same period last year, with comparable retail sales down 2.3%. The company noted that the retail environment is “challenging,” among other factors. Walgreens’ international division operates more than 3,000 retail stores, with third-quarter sales of $5.73 billion, up 2.8% from the same period last year. The company said sales at its U.K.-based Boots chain grew 16%. Bloomberg News reported earlier this month that Walgreens canceled plans for a potential initial public offering of the subsidiary and was in informal talks with potential buyers, including private equity firms. But Wentworth said Walgreens has no plans to sell the chain. “Boots is our major contributor now, there is no question,” he told CNBC. CNBC’s Bertha Coombs contributed to this report.