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Walgreens slashes outlook as pandemic-driven demand fades

Walgreens

Walgreens Boots Alliance Inc. slashed its fiscal-year earnings forecast, hurt by fading pandemic demand and a slow transition deeper into health care.

Annual adjusted earnings will be $4 to $4.05 a share, the Deerfield, Illinois-based company said Tuesday in a statement, down from the earlier range of $4.45 to $4.65. Adjusted earnings for the third-quarter were $1 a share, short of analysts’ average estimate of $1.06.

Walgreens is facing a rapidly changing competitive environment. On Nov. 17, 2020, online retail giant Amazon.com Inc. said it would expand its push into US prescription drug sales.

Walgreens Boots is ranked #19 in Digital Commerce 360’s Top 1000, which ranks retailers by annual web sales.

“We have seen changing market trends that have consumers prioritizing value in response to a more uncertain and challenging economic environment,” Chief Executive Officer Roz Brewer said on an earnings call. “There has been a steep drop-off in Covid vaccines and testing, and with the end of the public-health emergency we are also experiencing a slower profit ramp for US health care.”

After the pandemic pulled people into drugstores for vaccines and tests, cracks are starting to reappear in the business model that depends on pharmacy-driven foot traffic to sell higher-margin items like toothpaste and over-the-counter therapies. The end of the pandemic emergency has also seen states drop residents from the rolls of Medicaid, the health program for low-income people.

Savings Target

And while Walgreens is betting on an expansion into the wider health world —adding primary-care centers to US locations, partnering with insurers and moving into clinical trial recruitment — the transition hasn’t been simple.

“The health-care services segment is taking longer to stand up,” Bloomberg Intelligence analyst Jonathan Palmer said in a note, “which isn’t a huge surprise and at the same time, Walgreens’ ability to catalyze the unit by deploying capital is slowly drying up.”

Quarterly revenue in the US health-care business matched analysts’ average estimate of $2 billion.

Walgreens raised the target for savings from a cost-cutting program to $4.1 billion from $3.5 billion, and expects savings of $800 million in fiscal 2024. The company said in May that it would cut 10% of its corporate workforce, or about 504 employees, as it seeks to restructure to align better with a focus on patient care. Those job cuts were completed in about four months, Chief Financial Officer James Kehoe said on the call, saving more than $100 million.

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