Walgreens Posts Mixed Q3

Retail sales comps edge up, but market pressures and waning COVID-related demands spur revised outlook and store closings

Lynn Petrak

6/27/2023

Solid beauty, personal care and grocery demand helped lift retail sales at Walgreens during the third quarter.

A hardening of consumers’ spending and a softening of interest in vaccines and COVID tests and treatments was evident in the recently-concluded third quarter at Walgreens Boots Alliance, Inc. (WBA). The company’s earnings came in lower than expected, with a dip in profitability and market conditions that led to a slowdown in demand for certain products and services.

According to WBA’s third-quarter financial report, net earnings reached $118 million in the three-month period, compared to $289 million during the third quarter of fiscal 2022, while earnings per share (EPS) fell to $0.14 from $0.33 the prior year. Adjusted net earnings rose 3.4% on a constant currency basis, attributed to adjusted operating income.

While earnings took a hit, sales went up by 8.6% during the quarter, topping $35.4 billion. The overall upturn was fueled by sales growth in the U.S. retail pharmacy and international segments, along with contributions from the health care division in the United States. Excluding tobacco, comparable retail sales rose 0.2%, with strong results in the grocery and household and beauty categories.

CEO Rosalind Brewer said that the overall sales growth was noteworthy, but underscored the challenging operating environment. “Consumers continue to appreciate the value, convenience, and range of services provided by Walgreens and Boots. However, 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,” she remarked.

Given reined-in consumer spending and changing health care needs among many Americans, WBA updated its outlook for the rest of the year. The company revised its EPS to $4.00-$4.05 from the previous estimate of $4.45-$4.65.

“Our revised guidance takes an appropriately cautious forward view in light of consumer spending uncertainty, while still demonstrating clear drivers of a return to operating growth next fiscal year. We are raising our cost savings program target to $4.1 billion and taking immediate actions to optimize profitability for our U.S. Healthcare segment,” Brewer explained, adding, “I am confident that our turnaround strategy positions WBA to drive sustainable core growth and deliver long-term shareholder value."

Among other measures to boost profitability, WBA announced that it will reduce capital and project spending, simplify its portfolio to pay down debt and fund strategic initiatives and boost synergies between the company’s U.S. healthcare and Walgreens operations. During the latest earnings call with investors, CFO James Kehoe shared that the company plans to close 150 locations and an additional 300 stores in the U.K. as part of its cost-cutting plans. The announcement of the store closings comes on the heels of a round of layoffs at the company's corporate offices, announced in May.

As Walgreens underlined its focus on profitability, the company shared some Q3 bright spots. From a labor standpoint, the company returned 300 stores to normal pharmacy operating hours and optimized hours at another 500 locations. The retailer is also rolling out a world-first super peptide skincare range in its owned brand No7 Future Renew, introduced in the U.S. market in June. Its health care service also expanded, with the addition of six new health system providers and a fourth payor partner.

For fiscal 2024, WBA shared preliminary expectations for low- to mid-single digit adjusted operating income growth.

Deerfield, Ill.-based Walgreens, which operates nearly 9,000 retail locations across the United States, Puerto Rico and the U.S. Virgin Islands, is No. 5 on The PG 100, Progressive Grocer’s 2023 list of the top food and consumables retailers in North America.