Walgreens Boots Alliance’s Q4 results likely to reflect market challenges

Walgreens Boots Alliance, Inc. (NASDAQ: WBA) has been struggling to maintain sales momentum and profitability for quite some time due to a challenging operating environment. The main headwinds to the business are inflation-induced strain on consumer spending and unfavorable market dynamics. Considering those factors, market watchers have issued not-so-optimistic estimates for the August quarter.

The market’s disappointment over Walgreens’ inability to stay resilient is visible in the performance of its stock. WBA is one of the worst-performing stocks that constantly underperformed the industry and the broad market in recent times. Last month, the shares slipped into the single-digit territory for the first time in more than two decades. The value has plunged around 67% so far this year.

The Deerfield-headquartered retail pharma giant is set to publish its fourth-quarter report on Tuesday, October 15, at 7:00 am ET. The consensus earnings estimate for the final three months of fiscal 2024 is $0.36 per share, which is sharply lower than the $0.67 per share the company earned in the prior-year quarter. Sales are expected to increase modestly to $35.75 billion in the fourth quarter from $35.42 billion a year earlier.

Slowdown

With family budgets coming under pressure from the economic slowdown, Walgreens’ customers have become increasingly price-conscious. The situation has forced the company to introduce promotional offers and discounts, which in turn put pressure on near-term profitability. Meanwhile, the company has initiated measures to make its business model sustainable, such as renegotiating incentives with partners and partnering directly with pharma companies to take advantage of its unique position in the market.

Walgreens and its peers like CVS Health have been facing stiff competition from Amazon ever since the latter entered the pharmacy retail space with the acquisition of PillPack about six years ago. While continuing its efforts to boost store traffic, Walgreens has revealed plans to close nearly a fourth of its stores, with a focus on unprofitable locations, as the shift to online prescriptions continues.

In the three months ended May 31, 2024, Walgreens’ sales grew across all three operating segments, driving up the total to $36.4 billion. Comparable pharmacy sales rose 5.7% year-over-year, while comparable retail sales dropped 2.3%. Excluding special items, third-quarter earnings decreased to $0.63 per share from $1.00 per share a year earlier, mainly reflecting lower sale-leaseback gains and softness in retail and pharmacy performance.

Outlook

Meanwhile, reported profit more than doubled to $344 million or $0.40 per share during the three months, aided by a decrease in SG&A expenses. Earnings missed Street View while revenues almost matched estimates, after beating in the trailing two quarters. In a sign that the strain on profitability has extended into the second half, the Walgreens leadership forecasts adjusted earnings per share in the $2.80-2.95 range for fiscal 2024, which is below the prior-year number.

“As we look ahead to the remainder of the year, we are operating under the following assumptions. We expect the operating environment to remain challenging. We do not expect an improvement in the U.S. retail environment. And finally, we expect script volume growth to remain muted and anticipate continued pressures on pharmacy margins. In light of these factors, we are reducing our outlook. We now expect to deliver adjusted earnings per share of $2.80 to $2.95 for the fiscal year 2024,” said Walgreens’ CEO Tim Wentworth during the Q3 earnings call.

Walgreens’ stock has been languishing below its 12-month average for around five months. After losing a dismal 54% in the past six months, the shares traded slightly higher on Monday afternoon.