A person drives past a Walgreens truck, owned by the Walgreens Boots Alliance, in Manhattan, New York City on November 26, 2021.
Andrew Kelly | Reuters
Wal vegetables Tuesday reported fourth-quarter revenue and adjusted profit that beat Wall Street expectations as the company cuts costs in an effort to get itself out of a tough spot.
The drugstore chain also said it plans to close approximately 1,200 stores over the next three years, including 500 in fiscal 2025 alone. The company said these closures will be “immediately accretive” to adjusted earnings and free cash flow.
Walgreens has about 8,700 locations in the US, a quarter of which it says are unprofitable.
The company's shares rose about 8% in premarket trading.
The results cap a difficult fiscal 2024 fiscal year for Walgreens, which is struggling with pharmacy reimbursement pressures, weaker consumer spending and challenges related to the transition to primary care, among other issues. The company said Tuesday it has surpassed its goal of cutting $1 billion in costs by fiscal 2024, which includes closing underperforming stores, laying off workers and using artificial intelligence to make its supply chain more efficient.
In June, Walgreens said it plans to close a “significant” number of its underperforming stores by 2027. Tuesday's announcement appears to be the company's first exact estimate for the number of locations it will close.
Here's what Walgreens reported for the three-month period ending August 31, compared to what Wall Street expected, based on a survey of analysts by LSEG:
- Earnings per share: 39 cents adjusted versus 36 cents expected
- Revenue: $37.55 billion vs. $35.76 billion expected
Walgreens posted revenue of $37.55 billion this quarter, up 6% from the same period a year ago.
The company reported a net loss of $3 billion, or $3.48 per share, for the fiscal fourth quarter. That reflects a so-called valuation adjustment intended to reduce the company's deferred tax assets, mainly related to opioid settlements.
It compares with a net loss of $180 million, or 21 cents per share, in the same period a year earlier.
Excluding certain items, adjusted earnings for the quarter were 39 cents per share.
The fourth-quarter and full-year results “reflected our disciplined execution on cost management, working capital initiatives and reductions in capital expenditures,” Walgreens CEO Tim Wentworth, who stepped into the role nearly a year ago, said in a news release .
The company's expectations for fiscal 2025 were in line with analyst expectations. Walgreens expects growth in its U.S. healthcare and international segments, which will be offset by a decline in its retail pharmacy segment.
Walgreens expects adjusted earnings per share of $1.40 to $1.80 for the coming fiscal year. Analysts expect adjusted earnings of $1.75 per share, according to LSEG.
The company also expects revenue this year of $147 billion to $151 billion. Wall Street analysts estimate revenue at $147.3 billion.
Growth in all three business units
Walgreens reported growth across its three business divisions in the fourth fiscal quarter.
Revenue from the company's U.S. healthcare division rose to $2.11 billion, up 7.1% from the same period a year ago.
Analysts had expected revenue of $2.10 billion, according to StreetAccount estimates.
That partly reflects the growth of primary care provider VillageMD and specialty pharmacy company Shields Health Solutions. Shields' revenue rose 27.8% during the period, which the company attributed to growth within existing partnerships.
Specialty pharmacies are designed to provide medications with unique handling, storage and distribution requirements, often for patients with complex conditions such as cancer and rheumatoid arthritis.
Notably, Walgreens posted a sharp net loss in the second fiscal quarter as it booked a hefty charge of nearly $6 billion related to the decline in the value of its investment in VillageMD. In August, the company said in a securities filing that it was considering a sale of the provider.
A sign advertises Covid-19 vaccinations at a Walgreens pharmacy in Somerville, Massachusetts, on August 14, 2023.
Brian Snyder | Reuters
Walgreens' U.S. pharmacy segment generated $29.47 billion in revenue in the fourth quarter, up 6.5% from the same period last year. Analysts had expected revenue of $28.09 billion, according to StreetAccount estimates.
That segment operates the company's drugstores, which sell prescription and over-the-counter drugs, as well as health and wellness, beauty, personal care and nutritional products.
Walgreens said pharmacy sales for the quarter increased 9.6% and pharmacy comparable sales increased 11.7% compared to the year-ago period, partly due to brand-name drug price inflation.
Total prescriptions filled in the quarter, including vaccines, totaled 302 million, up 1.7% from the same period a year ago. In particular, declining prescription drug reimbursements have hurt pharmacy margins, the company said.
Retail sales fell 3.5% from the prior year quarter, and comparable retail sales fell 1.7%. The company cited, among other things, a “challenging” retail environment.
Walgreens' international division, which operates more than 3,000 stores abroad, posted sales of $5.97 billion in the fiscal fourth quarter. That is an increase of 3.2% compared to the same period a year ago.
Analysts expected revenue of $5.81 billion for the period, according to StreetAccount.
The company said sales at British drugstore chain Boots rose 2.3%.