Walgreens Boots Alliance on Thursday raised its outlook for the year and laid out its strategy to drive growth, after a stronger-than-expected fiscal third quarter.
Even so, shares fell more than 6% early Thursday on concerns about the slowing pace of Covid-19 vaccinations and skepticism of whether the drugstore can execute its turnaround strategy.
The company is in the midst of a transformation led by its new CEO, Roz Brewer, former chief operating officer of Starbucks. Even before the pandemic, drugstore chains were under pressure as online retailers like Amazon stole away sales of everyday items, like toothbrushes and shampoo, along with pharmacy sales. The global health crisis accelerated that e-commerce shift, caused foot traffic to fall and forced companies to come up with new ways to stay relevant.
Brewer said she is committed to making investments needed to “build the pharmacy of the future.” She said many customers feel overwhelmed as they try to manage their care while juggling multiple doctor appointments and medical conditions. She said Walgreens can help by offering simpler, personalized and digital solutions.
“The overall health-care space is sprawling and incredibly complicated,” she said. “So we must be laser-focused on the products and services that have the most potential and value that can be enabled with the most innovative technology, and that will be delivered at a level and quality that our customers expect.”
On Thursday, Walgreens shared more details about its strategic priorities. Among them, the drugstore chain said it will turn itself into a neighborhood health destination as it opens primary-care clinics with VillageMD at hundreds of its stores and will use automation to free up time for pharmacists to help customers. The company said it also plans to focus on digital, so more people use its app and receive personalized offers that inspire purchases. And it said it will continue to work toward reducing annual costs by more than $2 billion by next fiscal year.
The drugstore chain said it now anticipates about 10% growth in adjusted earnings per share for the year, due to rebounding sales and the boost from Covid-19 shots. It had previously forecast growth in the mid-to-high single digits. So far, the company said it has administered more than 25 million vaccines.
John Boylan, senior equity analyst who covers consumer staples for Edward Jones, said Brewer has started out on the right foot. Yet he said it will take time to see if she can pull it off her ambitious plans.
“Some uncertainty remains and it may take time to see a lot of these efforts unfold,” he said. “This is the first step of a long process.”
Here’s what Walgreens reported compared with what analysts were expecting for the third quarter ended May 31, based on Refinitiv data:
- Earnings per share: $1.51 adjusted vs. $1.17 expected
- Revenue: $34.03 billion vs. $33.76 billion expected
In the quarter, Walgreens posted a net profit of $1.20 billion, or $1.38 per share, compared with a net loss of $1.71 billion, or $1.95 per share, a year earlier.
Excluding items, the company earned $1.51 per share, higher than the $1.17 expected by analysts surveyed by Refinitiv.
Sales rose to $34.03 billion from $30.36 billion a year earlier, exceeding the $33.76 billion that analysts expected.
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 administer around 7 million Covid vaccines in the fourth quarter, down from 17 million in the third quarter.
Kehoe acknowledged that the drugstore chain will face tough comparisons because of that next year. However, he said, it has seen momentum as people return to more typical shopping patterns and prescription refills. It also anticipates sales will pick up as it invests in modernizing the company and has a more normal cold and flu season next year.
Walgreens’ same-store sales in the U.S. rose by 6.4% compared with a year ago, a quarter when the company’s sales were hit hard by people largely staying at home during the pandemic. Prescriptions filled in the third quarter grew nearly 10% from the year-ago period, including the lift from Covid vaccinations.
Walgreens’ international business in the United Kingdom saw a resurgence, especially compared with a year ago. At Boots UK, comparable retail sales jumped by about 39% year over year due to the easing of lockdown measures and people returning again to stores near airports, train stations and major parts of town. Comparable pharmacy sales increased about 4% compared with the year-ago quarter.
In the front of the store, comparable retail sales rose 1.7% compared with the year-ago quarter, as more customers received personalized offers, bought beauty items and printed photos.
As of Wednesday’s close, Walgreens shares are up about 32% so far this year. The company’s market value is $45.48 billion.