Walgreens, a retail pharmacy giant, experienced a significant drop of nearly 20% in its stock shares following the announcement of fiscal third-quarter earnings that failed to meet expectations. The company attributed this disappointing performance to a “challenging” environment for pharmacies and U.S. consumers. CEO Tim Wentworth highlighted the shock experienced by consumers due to high prices of products, leading to resistance towards current pricing. This resistance has forced Walgreens to focus on cost-cutting efforts, particularly in discretionary items.
The revised adjusted profit outlook for fiscal 2024 now stands at $2.80 to $2.95 per share compared to the previous estimate of $3.20 to $3.35 per share. Despite falling short on earnings per share, Walgreens managed to surpass revenue estimates for the quarter, driven by strong performance in its health-care segment. The company views this segment as critical in its transformation from a drugstore chain into a larger health-care entity.
In response to the challenging macroeconomic environment, Walgreens is working on reducing costs. The company plans to simplify its U.S. health-care portfolio and close underperforming stores over the next few years. Wentworth emphasized the profitability of 75% of Walgreens stores, indicating that the company will be evaluating and finalizing the closure of less profitable locations.
Financial Performance and Growth Strategies
Walgreens reported earnings per share of 63 cents adjusted for the quarter, falling short of the expected 68 cents. However, revenue for the quarter stood at $36.4 billion, exceeding the projected $35.94 billion. The company recorded a net income of $344 million or 40 cents per share, up from $118 million or 14 cents per share from the previous year. Walgreens experienced growth across its business divisions, with a notable 7.6% increase in sales for the U.S. health-care unit.
While the U.S. retail pharmacy segment generated $28.5 billion in sales, a 2.3% increase from the previous year, retail sales fell by 4% in the quarter. Walgreens attributed the decline in retail revenue to various factors, including a challenging retail environment. The international segment, operating over 3,000 retail stores abroad, reported $5.73 billion in sales with growth driven primarily by sales from its U.K.-based chain, Boots.
Walgreens faced setbacks with its investment in primary care provider VillageMD, resulting in the decision to close 160 VillageMD clinics. Despite these challenges, the company aims to sustain its investment while reducing exposure to risky ventures. The decision to rethink operations and focus on the retail pharmacy business signifies a shift in strategy to ensure long-term sustainability.
Walgreens’ decline in stock shares and adjusted profit outlook reflects the challenges faced by the company in an evolving market landscape. By implementing cost-cutting measures, focusing on growth opportunities in the health-care segment, and reassessing its investment strategies, Walgreens is taking steps towards adapting to changing consumer demands and industry trends.