Walgreens Shares Sink to New 52-Week Low Despite Strong Earnings Report

Ticker Symbol: WBA

Large pharmacy-store operator, Walgreens Boots Alliance shares were trading down roughly 5% to $38.75 in the mid-morning session despite beating Wall Street’s earnings estimates. The company also reaffirmed its adjusted earnings forecast for the full fiscal year. Shares have come under pressure lately after the company put a pause on its plans to sell its United Kingdom-based Boots drugstore business.

Third-quarter earnings per share from continuing operations came in 2 cents above analysts’ expectations at 96¢. Revenue for the period totaled $32.6 billion against estimates of $32 billion, but down roughly 4.2% from the year-ago period. Sales in the U.S. missed slightly, coming in at $26.7 billion, versus the $26.8 billion expected. Adjusted gross margins were also a miss, with the company recording 20.3% versus an average estimate of 20.9%.

Despite the beat on both the top and bottom lines for the third quarter, investors seem to be focusing on the guidance for the fourth quarter, which was in line with what the company had projected before, but slightly below analyst’s forecasts. Furthermore, the decision earlier this week by Chief Executive Officer Rosalind Brewer to suspend the sale of Boots after the company could not generate attractive bids for the unit has sharpened investors’ disquiet with the board and management.

Boots pharmacy chain was projected to be valued at $6 billion, but current market conditions and higher financing costs have driven away some buyers. Despite that bit of bad news, management stated that the underlying business at Boots was strong, with the company generating strong revenue growth by gaining market share across all major categories. Boots.com, the digital arm of the unit, also accounted for 13% of total retail sales from stores, compared to 6% pre-pandemic.

Walgreen’s new Health unit, which is focused on expanding stores from pure pharmacies to direct patient care locations performed well during the quarter, with the unit posting revenue of $596 million. The company has started partnering with healthcare insurance firms to provide primary care at its drug stores. Despite the growth in the Walgreens Health unit, the company reiterated that costs would remain elevated shortly as it invests aggressively in the shift.

Additionally, retail sales also picked up during the quarter, helping to offset declining sales from a drop in COVID vaccine visits. Walgreens administered only 4.7 million vaccines in this period versus 15.6 million shots in the second quarter. Same-store retail sales, which do not include pharmacy prescriptions, jumped 24% in the U.K and were up 2.4% in the U.S. The company’s expansion in digital, including curbside pickup and delivery, and replicating services from Amazon, have helped to buttress against a drop in foot traffic at many stores.

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