WBA Earnings Preview: Will Walgreens’ Q3 report bring cheer to investors?

Walgreens Boots Alliance, Inc. (NASDAQ: WBA) has been facing challenges due to higher operating costs, rising competition, and an unfavorable retail environment. These factors have put pressure on the drugstore chain’s profitability. The market will be keeping a tab on next week’s earnings, looking for updates on the management’s initiatives to revive the business.

In recent years, Walgreens’ stock struggled to keep pace with the broad market, with the value nearly halving in the past twelve months. Being one of the worst-performing Wall Street stocks, the outlook on WBA is quite bearish. The only redeeming features of the stock at present seem to be its historically low price and above-average dividend yield. It is worth noting that the management recently lowered the dividend by 48% to boost liquidity and improve the balance sheet.

Estimates

After delivering stable sales growth and mixed bottom-line performance in the first half, the pharmacy giant is preparing to publish the third-quarter report on June 27, at 7:00 am ET. It is estimated that sales increased modestly year-over-year to about $36 billion in the May quarter. The market’s projection for Q3 earnings is $0.71 per share, excluding one-off items, vs. $1.00 per share a year earlier.

The Walgreens management is busy streamlining the business with a focus on cost-efficiency, targeting $1 billion in savings in the current fiscal year. A strategic review of the portfolio is underway, while also exploring growth opportunities to create long-term value across the business. The goal is to transform Walgreens into a more focused and disciplined business over the next twelve months through initiatives like including more private brands and enhancing omnichannel capabilities. The company has been expanding its e-commerce footprint and has emerged as a top player in online drug sales.  

Q2 Results Beat

In the second quarter of 2024, adjusted earnings rose to $1.20 per share from $1.16 per share in the same period of the prior year and exceeded estimates. That reflects a 6.3% rise in Q2 sales to $37.05 billion, topping expectations. All three operating segments expanded, with the largest contributor being the US Retail Pharmacy business which accounts for about 78% of total sales.

Walgreens’ CEO Tim Wentworth said in a recent interaction with analysts, “Operationally, we’re intensely focused on the customer experience and meeting customers where, when, and how they want to shop. That means enhancing the experience not only in-store but ordering online for pickup in-store and also same-day delivery, where over 80% of orders are received in less than an hour. Additionally, we are empowering our store managers and field leaders to share in our company’s anticipated growth and increase their ability to impact areas that matter most to their stores and their customers.”

EPS Revision

On a reported basis, the company posted a net loss of $5.91 billion or $6.85 per share for Q2, compared to a profit of $703 million or $0.81 per share in the prior year period. Walgreens’ leadership has lowered its full-year adjusted earnings guidance to $3.20-$3.35 per share, mainly citing the challenging retail environment and lower sale-leaseback gains.

The stock has slipped to the lowest level in more than two-and-a-half decades. It traded lower throughout Thursday’s session, reversing most of the recent gains.