Walgreens Boots Alliance on Thursday raised its annual outlook and outlined its strategy to drive growth after a stronger-than-expected fiscal third quarter.
Even so, stocks fell more than 6% early Thursday amid concerns about the slowdown in Covid-19 vaccinations and skepticism about the drugstore’s turnaround strategy.
The company is in the midst of a transformation led by its new CEO Roz Brewer, former Starbucks Chief Operating Officer. Even before the pandemic, drugstore chains were under pressure as online retailers like Amazon stole everyday items like toothbrushes and shampoo, as well as pharmacy sales. The global health crisis accelerated the e-commerce shift, resulted in a drop in visitor numbers and forced companies to find new ways to stay relevant.
Brewer said she was determined to make the investments necessary to “build the pharmacy of the future.” She said many clients feel overwhelmed trying to manage their care while balancing multiple doctor appointments and illnesses. She said Walgreens can help by offering simpler, more personalized and digital solutions.
“The whole health sector is vast and incredibly complex,” she said. “That is why we need to focus on the products and services that have the greatest potential and value that can be made possible with the most innovative technology and that are delivered at the level and quality that our customers expect.”
On Thursday, Walgreens shared more details on its strategic priorities. Among them, the drugstore chain said it will become a neighborhood health destination by opening primary care clinics in hundreds of its VillageMD stores and using automation to give pharmacists time to help customers. The company plans to also focus on digitization so that more people use its app and receive personalized offers that encourage them to buy. And it will continue to work to cut annual costs by more than $ 2 billion by the next fiscal year.
The drugstore chain said it now anticipates adjusted earnings per share growth of about 10% for the year due to the recovery in sales and the boost from Covid-19 shots. Previously, she had forecast mid to high single digit growth. To date, the company has administered more than 25 million vaccines.
John Boylan, senior equity analyst who covers consumer goods for Edward Jones, said Brewer got off to a good start. However, he said it will take time to see if she can pull off her ambitious plans.
“There remains some uncertainty and it may take some time for many of these efforts to unfold,” he said. “This is the first step in a long process.”
Here’s what Walgreens reported versus analyst expectations for the third quarter ended May 31: based on refinitive data:
- Earnings per share: adjusted $ 1.51 versus expected $ 1.17
- Revenue: Expected $ 34.03 billion versus $ 33.76 billion
For the quarter, Walgreens posted net income of $ 1.20 billion, or $ 1.38 per share. compared to a net loss of $ 1.71 billion or $ 1.95 per share last year.
With no items, the company made $ 1.51 per share, more than the $ 1.17 expected by analysts surveyed by Refinitiv.
Revenue rose to $ 34.03 billion from $ 30.36 billion last year, surpassing analysts’ forecast of $ 33.76 billion.
Covid vaccines – one of the company’s bright spots – peaked in the third quarter, said Walgreens Global Chief Financial Officer James Kehoe. He said the company expects to deliver around 7 million Covid vaccines in the fourth quarter, up from 17 million in the third quarter.
Kehoe admitted that the drugstore chain will face tough comparisons over the next year as a result. However, he said there has been a dynamic as people return to more typical shopping patterns and recipe refills. It also expects sales to pick up as it invests in modernizing the business and has a more normal cold and flu season for the next year.
Walgreens sales in the same store in the U.S. were up 6.4% year over year, a quarter when the company’s sales were hit hard by people who stayed mostly at home during the pandemic. Prescriptions issued in the third quarter increased nearly 10% year over year, including the waiver of Covid vaccinations.
Walgreens’ international business in the UK saw a resurgence, particularly when compared to last year. At Boots UK, like-for-like retail sales rose about 39% year-over-year as lockdown measures eased and people returned to stores near airports, train stations and much of the city. The comparable pharmacy sales increased by around 4% compared to the same quarter of the previous year.
In the store, comparable retail sales increased by 1.7% compared to the same quarter of the previous year, as more customers received personalized offers, bought beauty items and printed photos.
At the close of trading on Wednesday, Walgreens stock is up about 32% so far this year. The company’s market value is $ 45.48 billion.
Read the company’s press release here.
