Walgreens off to ‘soft start’ in new fiscal year

Walgreens Boots Alliance did not come running out of the gate in its first fiscal quarter as earnings tumbled amid international and pharmacy challenges. 

Walgreens earned $845 million in the period ended Nov. 30, down from $1.12 billion in the year-ago quarter. Earnings adjusted for one-time items totaled $1.37 per share. Analysts expected, on average, earnings of $1.41 per share.

Revenue edged up 1.6% % to $34.3 billion. Analysts expected $34.6 billion in revenue. 

On a conference call with analysts, Walgreens executives said that the company was hurt, in part, by a difficult market in the United Kingdom. Walgreens was also challenged by lower-than-expected prescription volume. Similar to other pharmacy providers, the company is also feeling the impact of tighter prescription reimbursement from insurers and other payers. 

Walgreens is currently undertaking a cost management program designed to simplify operations and supply chain management. The initiative is expected to save the company $1.8 billion or more annually by 2022.

“We are maintaining our outlook for the year despite a soft first quarter,” stated executive vice chairman and CEO Stefano Pessina. “We are confident our strategic plans are the right ones to drive long-term sustainable growth going forward. In addition, during the quarter we were very satisfied with the progress made in our transformational cost management program and with the strong cash flow we delivered.”

Neil Saunders, managing director of GlobalData Retail, commented that while the savings from Walgreens’ cost management program will be helpful to the bottom line, they “need to be accompanied by a plan to drive topline growth – and on this front we find Walgreens wanting.”

“All of the future initiatives appear to be about driving cost savings in the easiest way possible – such as creating a purchasing group with Kroger,” Saunders said. “There is nothing inherently wrong with this approach, but we would like to see it accompanied by a vision about what Walgreens can deliver for customers. Failure to do so will simply see short term gains on the bottom line accompanied by an erosion of customer loyalty, traffic, and sales.”