Transforming Walgreens Disappoints With Earnings But Onboards A Promising Healthcare Veteran As CEO

Walgreens Boots Alliance WBA delivered a disappointing fourth quarter report and profit outlook but made more cost-cutting promises as it prepares for resetting its growth strategy with a new CEO, Tim Wentworth, who will be taking over on October 23rd from his predecessor Rosalind Brewer who accelerated the pharmacy chain’s push into primary care and other dimensions.

Wentworth undertook quite a challenge as it needs to steer the retail pharmacy giant out of a rough spot. Walgreens has been facing sharply lower sales from COVID vaccinations and testing, along with softer spending by inflation-weary consumers. Its shares have fallen almost 40% this year. As the drugstore chain highlighted more cost-cutting measures, along with AI initiatives to make its supply chain more efficient, shares rose 5% in early trading and closed 7% higher on Thursday.

Fourth Quarter Highlights

For the fiscal quarter, Walgreens reported revenue grew roughly 9% to $35.42 billion, topping $34.78 billion LSEG estimated but adjusted earnings amounted to 67 cents, below the expected 69 cents. The Covid-19 transition, leadership turbulence, a wobbly push into healthcare and recent three-day walkouts from its pharmacy staff took a toll as Walgreens missed Wall Street earnings estimates for two consecutive quarters. It has been nearly a decade since Walgreens came short of Wall Street earnings expectations for two quarters in a row. It certainly does not help that Walgreens reported that its U.S. retail sales dropped 4.3% along with a 0.5% decline in total prescriptions that include vaccinations. Walgreens also lost customer share in beauty and personal care due to higher prices that customers were not willing to tolerate, according to GlobalData Managing Director Neil Saunders. 

However, interim CEO Ginger Graham finds that this year’s performance has not reflected the strength of Walgreens’ assets, brand legacy and its commitment to our customers and patient.

On A More Positive Note…

On a brighter note, Walgreens narrowed its net loss to $180 million, or 21 cents per share, down from 2022’s comparable quarter when it lost $415 million, or 48 cents per share.

It also reported growth of its health care business, which is now the center of its strategy as Walgreens continues its identity transformation from being a major drugstore chain to a large health-care company. During its fourth fiscal quarter, its U.S. retail pharmacy segment experienced a 3.7% YoY growth as it brought in sales of $27.66 billion. Comparable sales at individual locations rose 5.7%. Pharmacy sales expanded 6.4% YoY with comparable sales rising more than 9% due to price inflation and other impacts. Its international segment experienced a 12% YoY growth as it racked up $5.78 billion in sales with its U.K. subsidiary, Boots, reporting growth of 11%.

Progress Has Been Made With Cost Cutting Initiatives

The drugstore chain will be lowering capital expenditures by about $600 million with the impact of these cost reductions expected by early next year. Walgreens stated that it will be trimming its fiscal 2024 costs for at least $1 billion in costs as part of its ongoing efforts, which include shutting unprofitable stores, after the pharmacy chain operator forecasted financial year 2024 profit below Wall Street's expectations.

Challenges Remain

Walgreens continues to face a steep drop in sales of COVID-19 products along with a weak season of respiratory illnesses, a persistently weak prescription drug demand, pressures from its pharmacy staff and weak demand for its consumer health products due to high inflation. Last financial year was a tough one for Walgreens as it recorded a $6.8 billion pre-tax charge for opioid-related claims and litigation.

A prudent fiscal 2024 year outlook as 2023 challenges are expected to linger.

As for the new financial year that ends next August, Walgreens guided for an adjusted profit of $3.20 to $3.50 per share, coming in below LSEG’s estimate of $3.72 per share on the back of annual revenue in the range between $141 billion and $145 billion. 

Wentwork Has A Tough Job At Hand

The former Express Scripts executive brings nearly three decades of healthcare leadership experience to the second-largest U.S. pharmacy chain operator who has pined its hopes on this healthcare industry veteran to reverse its drop in profits and boost its stock price as it navigates through its healthcare transformation. 

Amazon Might Have Many Years Before Disrupting Healthcare, But Still Poses A Scary Threat

Meanwhile, Amazon.com Inc AMZN continues to relentlessly pursue healthcare as it works on coordinating its operations in this new segment. For the first ever, four Amazon health chief medical officers spoke together to Yahoo Finance in Las Vegas this week of this new chapter. Amazon was struggling to find its direction for years, but the pandemic was an eureka moment as it showed the tech titan the healthcare problems it can solve. However, Amazon is still years away from becoming a healthcare disruptor, as after all, it did not transform e-commerce overnight either, but this does not mean Walgreens should take its time with its turnaround that also won’t happen overnight. 

DISCLAIMER: This content is for informational purposes only. It is not intended as investing advice.