Walgreens in Q3 earnings miss; warns of ‘cautious’ consumer, big drop in COVID sales
Walgreens Boots Alliance reported third-quarter earnings that missed estimates and slashed its earnings outlook, taking a more cautious stance in light of “consumer spending uncertainty.”
The pharmacy and healthcare services company lowered its full-year earnings guidance to a range of $4.00 to $4.05 per share for the full year, down from its previous forecast of $4.45 to $4.65 per share. Walgreens also is increasing its cost-cutting initiative to $4.1 billion, from its previous target of $3.5 billion, and will take “immediate action” to increase profitability in its U.S. health-care segment.
In a statement, CEO Rosalind Brewer said that “significantly lower demand for COVID-related services, a more cautious and value-driven consumer and a recently weaker respiratory season” created margin pressures in the quarter.
On the earnings call, she told analysts that the soft demand for Covid vaccines and lower consumer spending is likely to continue into next year. (Brewer said Walgreens administered 800,000 COVID-19 vaccines in the third quarter, down 83% from the year-ago period.)
“Our customer is feeling the strain of higher inflation and interest rates, lower SNAP benefits and tax refunds and an uncertain economic outlook,” Brewer said.
Walgreens reported net profit of $118 million for the quarter ended May 31, or $0.14 per share, down from $289 million, or $0.33 per share, in the year-ago quarter. The decline was due primarily to lower operating income, according to the company. Adjusted earnings came to $1.00 per share, missing Street estimates of $1.07 a share. It was the first time Walgreens has missed analyst earnings expectations since July 2020.
Sales rose 8.6% to $35.42 billion in the quarter, topping analysts’ estimates of $34.24 billion. U.S. retail pharmacy segment sales rose 4.4% to $27.9 billion. Comparable sales rose 7%. Pharmacy sales increased 6.3%.
U.S. retail sales fell 1.0% and comparable retail sales decreased 0.2%. Excluding tobacco, comparable retail sales increased 0.2%, led by strong results in the grocery & household and beauty categories. This was partly offset by holiday seasonal weakness with discretionary spending pullback and headwind from lower sales of OTC test kits.
The U.S. health care segment had third quarter sales of $2.0 billion, an increase of $1.4 billion compared to the year-ago quarter. But it had a loss of $113 million before interest, tax, depreciation and amortization, driven by an expansion of VillageMD and fewer patient visits at Summit Health’s CityMD urgent care clinics..
The company noted it closed its full acquisition of CareCentrix on March 31, 2023, and closed VillageMD's acquisition of Starling Physicians, a leading primary care and multi-specialty group in Connecticut, on March 3, 2023.