Walgreens reported fiscal fourth-quarter revenue and adjusted profit on Tuesday that beat Wall Street's expectations as the corporate cut costs to emerge from the difficult situation.
The retail drugstore chain also said it plans to shut about 1,200 stores over the subsequent three years, including 500 in fiscal 2025 alone. The company said these closures would have an “immediate positive impact” on its adjusted earnings and free money flow.
Walgreens has around 8,700 locations within the USA, 1 / 4 of which is unprofitable.
These closures will give Walgreens a “healthier store base” and “allow us to respond to changes in consumer behavior and purchasing preferences,” the corporate's CEO Tim Wentworth said during an earnings call on Tuesday. He added that Walgreens intends to maintain the vast majority of employees affected by the closures employed, even though it is unclear what number of employees could lose their jobs.
The company's shares closed greater than 15% higher on Tuesday.
The results cap a difficult 2024 fiscal yr for Walgreens, which is scuffling with pharmacy reimbursement pressures, weaker consumer spending and challenges related to its push into primary care, amongst other issues. The company said Tuesday that it exceeded its goal of $1 billion in cost savings in fiscal 2024. These included closing underperforming stores, shedding employees and using artificial intelligence to make the provision chain more efficient.
Most of the advantages of cost reductions were seen in the corporate's U.S. retail pharmacy segment, Walgreens CFO Manmohan Mahajan said through the call.
In June, Walgreens said it planned to shut a “significant” variety of its underperforming stores by 2027. Tuesday's announcement appears to be the corporate's first accurate estimate of what number of locations it’ll close.
Here's what Walgreens reported for the three-month period ended Aug. 31, in comparison with Wall Street's expectations based on an LSEG analyst survey:
- Earnings per share: 39 cents adjusted versus 36 cents expected
- Revenue: $37.55 billion versus expected $35.76 billion
Walgreens reported revenue of $37.55 billion within the quarter, up 6% from the identical period last yr.
The company reported a net lack of $3 billion, or $3.48 per share, for its fiscal fourth quarter. This reflects a so-called valuation allowance intended to cut back the corporate's deferred tax assets, primarily related to opioid settlements.
That compares with a net lack of $180 million, or 21 cents per share, within the year-ago period.
Excluding certain items, adjusted earnings for the quarter were 39 cents per share.
Fourth-quarter and full-year results “reflect our disciplined execution of cost management, working capital initiatives and capital expenditure reductions,” Wentworth, who took the role nearly a yr ago, said in a news release.
The company's forecast for fiscal yr 2025 was in keeping with analysts' expectations. Walgreens expects growth in its U.S. healthcare and international segments, offset by a decline in its retail pharmacy segment.
The company is in a “multi-year process of realigning our relationship” with pharmacy profit managers, who negotiate drug discounts on behalf of health plans and reimburse pharmacies for prescribed drugs, Wentworth said through the call. Walgreens hopes this may help improve margins in its pharmacy business.
Walgreens expects adjusted earnings per share of $1.40 to $1.80 for the approaching fiscal yr. According to LSEG, analysts forecast adjusted earnings of $1.75 per share.
The company also expects revenue of $147 billion to $151 billion for the yr. Wall Street analysts estimate sales at $147.3 billion.
Growth in all three business areas
Walgreens reported growth across its three business units in its fiscal fourth quarter.
Sales at the corporate's U.S. healthcare division jumped to $2.11 billion, up 7.1% from the identical period last yr.
Analysts had expected sales of $2.10 billion, in accordance with StreetAccount estimates.
This reflects, partially, the expansion of primary care provider VillageMD and specialty pharmacy company Shields Health Solutions. Shields' revenue rose 27.8% within the period, which the corporate attributed to growth in existing partnerships.
Specialty pharmacies are designed to produce medications with unique handling, storage and distribution requirements, often for patients with complex diseases reminiscent of cancer and rheumatoid arthritis.
Notably, Walgreens posted a big net loss in its fiscal second quarter as the corporate took a big charge of nearly $6 billion related to the decline in the worth of its investment in VillageMD. In August, the corporate said in a securities filing that it was considering selling the provider.
Walgreens' U.S. pharmacy segment generated revenue of $29.47 billion within the fiscal fourth quarter, up 6.5% from the identical period last yr. Analysts had expected sales of $28.09 billion, in accordance with StreetAccount estimates.
This segment operates the Company's drugstores, which sell prescription and over-the-counter medications, in addition to health and wellness, beauty, personal care and grocery products.
Walgreens said pharmacy sales increased 9.6% and comparable pharmacy sales increased 11.7% within the quarter in comparison with the identical period last yr, due partially to cost inflation for brand-name drugs.
The total variety of prescriptions filled this quarter, including vaccines, was 302 million, up 1.7% from the identical period last yr. In particular, declining reimbursement rates for prescribed drugs reduced pharmacies' margins, the corporate said.
Retail sales fell 3.5% in comparison with the identical quarter last yr, and comparable retail sales fell 1.7%. The company cited, amongst other things, a “challenging” retail environment.
Walgreens' international unit, which operates greater than 3,000 retail stores abroad, reported sales of $5.97 billion in its fiscal fourth quarter. This is a rise of three.2% in comparison with the identical period last yr.
Analysts expected revenue of $5.81 billion for the period, in accordance with StreetAccount.
The company said sales at its UK-based drugstore chain Boots rose 2.3%.
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