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Walgreens shares plummet as discounts and thefts cut into profits

June 27, 2024
in Finance
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Walgreens shares plummet as discounts and thefts cut into profits
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Shares in Walgreens Boots Alliance sank to a 27-year low after the drugstore chain cut its profit outlook and announced more store closures, citing a difficult pharmacy business and strained American consumers. 

Under banners including Walgreens and Duane Reade, the company operates more than 8,000 stores across the US, its largest market. It also owns about 2,000 Boots pharmacies in the UK, along with outlets in several other countries. 

Drugstores in the US have been squeezed by lower reimbursements for pharmaceuticals and weaker spending from inflation-stretched consumers. Walgreens on Thursday pointed to more price discounts and theft undercutting US retail margins. 

“In US retail pharmacy, we witnessed continued pressure on the US consumer. Our customers have become increasingly selective and price-sensitive in their purchases,” Tim Wentworth, chief executive, told analysts. He also indicated that a possible sale or IPO of Boots UK was off the table.

The company reported net profit, adjusted for certain items, totalled $545mn in the third quarter that ended in May, down 36.5 per cent from $860mn a year before. Walgreens slashed its outlook for annual earnings per share by about 12 per cent.

Shares in Walgreens, which had fallen 45 per cent in the year to Wednesday, dropped as much as 25 per cent on Thursday afternoon. Rival drugstore chain CVS was down by 4.7 per cent.  

Wentworth, a former health insurance executive, joined Walgeens last October, replacing Rosalind Brewer, who had presided over a sharp decline in its stock price during her two and a half years in the role. 

Brewer had been recruited from Starbucks by Stefano Pessina, the executive chair who created the Walgreens Boots Alliance and remains its biggest shareholder. 

“We are at a point where the current pharmacy model is not sustainable and the challenges in our operating environment require we approach the market differently,” Wentworth said. 

“Changes are imminent” for the 25 per cent of US stores that have not been contributing to Walgreens’ operating profits, Wentworth told analysts, including a significant portion of them being closed over the next three years. 

Manmohan Mahajan, Walgreens’ chief financial officer, said the company had already closed 2,000 locations over the past decade.  

Walgreens highlighted Boots’ contribution to its international division, specifically its growth in retail sales. Comparable retail sales were up 6 per cent during the period driven by beauty brands and a greater number of shoppers visiting its stores.

The Nottingham-headquartered business has been fully owned by Walgreens since 2014. Speculation over its future ownership began in January when Wentworth said it was “evaluating all strategic options to drive sustainable long-term shareholder value” for the group. 

Walgreens previously abandoned plans to sell the 175-year-old company, saying that, while interest had been “significant”, the bids failed to reflect its potential value.

Wentworth said on Thursday: “Our review of Boots UK showed that we have attractive options to unlock value in this business. While we believe there is significant interest in Boots at the right time, its growth, strategic strength and cash flow remain key contributors to the company.”

“We are committed to continuing to invest in Boots UK and find innovative ways for this business to fulfil its potential,” he said.

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