Walgreens tempers financials for the rest of 2023

Walgreens is taking a step back from 2023 earnings projections following a third quarter that CEO Rosalind Brewer described as “disappointing.”

Lower-than-expected COVID-19 booster shots and testing, an ongoing troubled economy, and a weaker respiratory season led to the quarterly downfall. Walgreens has revised its full-year adjusted EPS guidance from $4.45-$4.65 to $4.00-$4.05.

“Our revised guidance takes an appropriately cautious forward view in light of consumer spending uncertainty, while still demonstrating clear drivers of a return to operating growth next fiscal year,” said Brewer.

“We are raising our cost savings program target to $4.1 billion and taking immediate actions to optimize profitability for our U.S. Healthcare segment. I am confident that our turnaround strategy positions [Walgreens] to drive sustainable core growth and deliver long-term shareholder value.”

There were some positive numbers coming out of the third quarter. Sales increased 8.6% year-over-year at $35.4 billion, and were up 8.9% on a constant currency basis. Adjusted net earnings were up 3.4% — $860 million — on a constant currency basis. However, net earnings — $118 million — were down significantly compared to third quarter 2022, when they were $289 million.

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Through the first nine months of 2023, sales were up 3.4% at $103.7 million compared to the same period in 2022, with a 4.8% increase on a constant currency basis. Operating losses, which include a $6.8 billion pre-tax charge for opioid-related claims and litigation, stand at $6.4 billion after nine months; it was $2.2 billion a year ago. 

The company’s adjusted operating income is at $3.2 billion — a drop of over 26% on a constant currency basis. Factors dragging the adjusted operating income were the COVID-19 de-acceleration, planned payroll investments in the U.S. retail pharmacies, and growth investments in U.S. Healthcare. 

The healthcare segment, which includes primary-care provider VillageMD and urgent care provider Summit Health, had a $113 million loss in the third quarter mainly due to the cost of expansion of VillageMD (93 more clinics were added year-over-year) and a decline in visits at Summit Health. A lighter-than-normal respiratory season kept Summit Health from seeing growth.

U.S. Healthcare

Still, the U.S. healthcare segment for Walgreen Boots Alliance was a strong contributor in terms of sales behind — $2 billion in the third quarter, a $1.4 billion increase year-over-year. On a pro-forma basis, the businesses behind U.S. healthcare grew sales at a combined rate of 22% in the third quarter. Adjusted growth profit for the group was $114 million, which is a $135 million increase vs. third quarter 2022.

U.S. Retail Pharmacy

Third quarter retail pharmacy sales were up 4.4% — $27.9 billion — year-over-year while comparable sales increased 7%. Pharmacy sales were up 6.3% compared to a year ago and comparable pharmacy sales increased 9.8%.

Excluding tobacco, comparable retail sales were up 0.2% in Q3 thanks to strong numbers in grocery and household and beauty categories.

The rest of the way

As for the rest of the fiscal year, the fourth quarter traditionally is a soft one for Walgreens, and officials expect it to be negatively impacted by a higher effective tax rate and shoppers shifting their spending, as well as a continued weak respiratory season. Adjusted operating income growth is expected to be up 0.6% in the fourth quarter compared to the third quarter. Walgreens is expected low- to mid-single digit adjusted operating income growth in fiscal year 2024.

Walgreens’ growth strategy moving forward includes announcing swift actions to improve the U.S. Healthcare path to profitability, including realigned CityMD costs, accelerated VillageMD patient panel build, aggressive integration of prior Summit Health acquisitions, upgraded VillageMD management, and an increased and accelerated synergy target for VillageMD/Summit Health. 

The company said it also wants to accelerate synergies between U.S. Healthcare and Walgreens operations.