Walgreens Boots Alliance provided an early look at the impact of COVID-19 on the drugstore industry during its second-quarter earnings call with analysts.
Coming off a strong second quarter during which its sales and earnings beat Street expectations (and which ended shortly before the COVID-19 outbreak), Walgreens started the second quarter with a big sales bump. The retailer’s same-store sales rose 26% in the first 21 days of March as consumers stocked up on medications and other items, CFO James Kehoe told analysts. But things cooled off in the last week of March, when sales dropped by a mid-teens percentage rate amid less foot traffic in stores and fewer sales of discretionary items.
Koehoe expressed confidence in the company’s preparedness and ability to weather the current crisis. He believes sales decreases are temporary since the majority of Walgreens products are considered essential items.
“Our fundamentals are sound and we are convinced we will exit this global crisis in a strong position,” he said.
Walgreens will continue to pay a dividend and do stock buybacks, which are two things that many other retailers have temporarily suspended during the current pandemic. The drug store giant said it can’t provide a reliable outlook for investors about the effects of COVID-19.
“The company will continue to closely assess and manage this situation, and will provide further updates in the next earnings report when both the potential positive and negative effects of the pandemic will be known in more detail,” the company stated in a release.
Walgreens has implemented several measures to make it easier for its companies to buy goods while socially distancing, from offering select non-prescription items at its drive-thrus to a partnership with Postmates to make contactless deliveries to customers’ homes.
Walgreens’ net income fell to $946 million, or $1.07 per share, in the quarter ended Feb. 26, from $1.16 billion, or $1.24 per share, a year earlier. Adjusted earnings per share were $1.52, better than the $1.46 per share analysts were expecting.
Revenue rose to $35.82 billion, from $34.53 billion last year. Analysts were expecting revenue of $35.27 billion.
Total sales at Walgreens’ U.S. retail pharmacy business increased 3.8% to $27.2 billion. Excluding the impact of leap day, same-store sales rose 2.7% from last year. (The company removed e-cigarettes from its U.S. stores last fall and put restrictions on tobacco sales last April.)
Pharmacy sales drove the increase. Same-store pharmacy sales rose 3.7%, fueled by an increase in the number of prescriptions filled.
For front-end or nonpharmacy products, same-store sales edged up 0.6%. Excluding tobacco and e-cigarettes, same-store sales of nonpharmacy products increased 1.9%.
Walgreens said its cost-cutting initiative remains on track. The company expects to have more than $1.8 billion in annual cost savings by fiscal 2022.
"We are pleased to report second-quarter results exceeding our expectations, with sequential improvement in comparable U.S. prescription volume and retail sales," said CEO Stefano Pessina. "During these unprecedented times of global uncertainty, Walgreens Boots Alliance is on the front lines of combating the COVID-19 pandemic. Our number one priority is to continue to provide essential services, products and information at this critical moment of need, demonstrating our unwavering commitment to our customers and patients, and to our people.”