Walgreens (WBA) earnings Q4 2023

Walgreens on Thursday offered soft profit guidance and reported fiscal fourth-quarter earnings that fell wanting expectations, as demand for Covid vaccines and tests sinks within the U.S. 

The retail pharmacy giant – squeezed by the transition out of the Covid pandemic, a leadership shake-up, its wobbly push into health-care and recent labor pressure from pharmacy staff – has now underperformed Wall Street’s adjusted earnings expectations for 2 straight quarters. The last time Walgreens posted a consecutive earnings miss was nearly a decade ago.

Still, Walgreens reported narrower losses and progress in its cost-cutting plans. It also posted sales growth in its health care business, which is now central to the corporate’s business strategy. Shares of Walgreens closed 7% higher on Thursday. The stock had been down greater than 39% for the 12 months heading into the open. 

The quarterly results got here two days after Walgreens named health-care industry veteran Tim Wentworth as its latest CEO following the abrupt departure of the corporate’s former top executive, Roz Brewer, last month. Wentworth, who will take over on Oct. 23, is tasked with steering the retail pharmacy giant out of a rough spot. 

“I even have worked with Walgreens as a customer partner, competitor investor and member of the family, and I understand the challenges ahead for us,” Wentworth, the previous CEO of Cigna‘s pharmacy advantages management company, said throughout the earnings call Thursday.

Wentworth also praised the corporate’s pharmacy staff, sharing a temporary story about how an worker at a Latest York location helped fill his mother’s prescription for critical medications. Nevertheless, he made no mention of the three-day walkouts that pharmacists and pharmacy technicians held this week to protest chronic understaffing and other poor working conditions.

The corporate said it expects adjusted earnings per share of $3.20 to $3.50 in the approaching fiscal 12 months, which is lower than analysts’ estimate of $3.72. Walgreens expects lower Covid-related sales, together with the next tax rate and lower sale and leaseback contributions, to offset earnings growth. 

Walgreens also sees revenue for the 12 months at $141 billion to $145 billion. Wall Street analysts estimated sales of greater than $144 billion.

“We see a continuation of the difficult trends that impacted us in 2023,” interim CFO Manmohan Mahajan said during an earnings call Thursday, noting that the corporate is “adopting a prudent approach.”

Mahajan added that Walgreens expects to see the next level of shrink, or lost inventory, within the upcoming fiscal 12 months, which has been increasing for the corporate over the past several months and continues to represent a serious systemic issue across the retail industry.

But Interim CEO Ginger Graham noted throughout the call that the corporate expects over $1 billion in savings throughout the next fiscal 12 months resulting from its ongoing cost-cutting initiative, which involves closing unprofitable stores and using AI to drive supply chain efficiencies, amongst other efforts.

Here’s what Walgreens reported compared with what Wall Street was expecting, based on a survey of analysts by LSEG, formerly often known as Refinitiv:

• Earnings per share: 67 cents adjusted vs. 69 cents expected
• Revenue: $35.42 billion vs. $34.78 billion expected

The corporate reported a net lack of $180 million, or 21 cents per share, for the fiscal fourth quarter. That compares with a net lack of $415 million, or 48 cents per share, throughout the same period a 12 months ago. Excluding certain items, adjusted earnings per share were 67 cents for the quarter. 

Mahajan said the loss was driven by charges for certain legal and regulatory approvals and settlements, and one-time charges related to Walgreens’ cost-cutting program.

Walgreens booked sales of $35.42 billion within the quarter, which is up roughly 9% from the identical period a 12 months ago resulting from growth in its U.S. retail pharmacy and international business segments. 

Sales in the corporate’s U.S. health-care division also grew. Walgreens noted in a release that it’s “intently focused on accelerating” that segment’s profitability moving forward. 

Walgreens has made significant investments to remodel from a serious drugstore chain to a big health-care company.

However the pharmacy chain is facing quite a lot of challenges in that transition, including a profit squeeze resulting from softer consumer spending and declining demand for Covid products as patients emerge from the pandemic. Walgreens can be facing an open revolt amongst pharmacists and pharmacy technicians demanding higher working conditions.

Walgreens’ U.S. retail pharmacy segment generated $27.66 billion in sales within the fiscal fourth quarter, a rise of three.7% from the identical period last 12 months. Comparable sales at individual locations rose 5.7%. 

Pharmacy sales for the quarter increased 6.4% compared with the fiscal fourth quarter of 2022, with comparable sales up greater than 9% resulting from price inflation in brand medications and blend impacts.

Total prescriptions filled within the quarter, including immunizations, decreased by 0.5% to 297 million. Walgreens cited a weaker respiratory virus season this fall, which is blunting demand for medications and vaccines. 

The corporate administered roughly 400,000 Covid vaccines within the quarter, down from 2.9 million throughout the same period last 12 months, based on Mahajan.

Retail sales for the quarter decreased 4.3% compared with the identical period a 12 months ago, and comparable retail sales fell 3.3%. 

Mahajan said retail revenue was impacted by a decline in demand for over-the-counter Covid tests, weaker cough, cold and flu sales and softer consumer spending. He added that elevated shrink negatively affected sales for health and wellness and private care and wonder products.

Meanwhile, the corporate’s international segment racked up $5.78 billion in sales within the fiscal fourth quarter, which is up greater than 12% from the identical period a 12 months ago. 

Mahajan said that reflects growth across all international markets, with sales from the corporate’s U.K. subsidiary, Boots, growing nearly 11%.

Sales in Walgreens’ U.S. health-care segment got here in at $1.97 billion, up from $622 million for a similar period last 12 months. Its operating loss narrowed to $294 million from $338 million.

Primary-care provider VillageMD, which incorporates urgent-care provider Summit Health, saw revenue grow by 17%. Walgreens said that reflects “existing clinic growth and clinic footprint expansion” of VillageMD, which has a network of tons of of full-service doctors offices across the U.S. 

Sales at CareCentrix, which coordinates home look after patients after they’re discharged from the hospital, increased 24% resulting from additional service offerings and expansion into additional markets. 

The health-care segment took a lack of $30 million within the quarter before interest, tax, depreciation and amortization, in comparison with a lack of $133 million throughout the same period a 12 months ago.

Walgreens said that “improvement” was driven by growth at CareCentrix and Shields Health Solutions, a specialty pharmacy company included within the health care segment. 

But John Driscoll, president of the U.S. health-care business, said that the corporate is “not satisfied with the near-term return on our investments” within the segment.

“We’ll proceed to grow in 2024 but with a renewed give attention to more profitable growth,” he said throughout the earnings call.

– CNBC’s Robert Hum contributed to this text.