Walgreens Boots Alliance (NASDAQ: WBA) reported better-than-expected fiscal first-quarter results, despite facing significant challenges such as store closures, rising operational costs, and shrinking prescription reimbursements. The pharmacy giant posted a loss of $265 million for the quarter but showed positive signs in its core business, particularly from a surge in prescription sales.
Q1 Earnings: Surpassing Analyst Expectations
Walgreens’ adjusted earnings per share (EPS) for the fiscal first quarter came in at $0.51, exceeding analysts’ expectations of $0.38 per share. Revenue for the quarter rose 7.5% to $39.5 billion, outperforming the forecasted $37.4 billion. The growth was driven by a significant 8% increase in sales from the company’s established U.S. retail pharmacy business, fueled by higher prescription demand.
Despite these positive results, Walgreens has been actively closing underperforming U.S. locations. In October 2023, the company revealed plans to shut down approximately 1,200 stores, and while the exact number of closures wasn’t disclosed, it is known that Walgreens has already closed nearly 1,000 U.S. locations since 2018 after its acquisition of Rite Aid stores.
Costs and Store Closures Weighing on Profitability
The company reported a quarterly loss of $265 million, primarily attributed to the costs incurred from its store closure strategy. Despite these financial setbacks, Walgreens maintained its fiscal 2025 adjusted EPS forecast of between $1.40 and $1.80, which aligns with analysts’ expectations of $1.52 per share.
CEO Tim Wentworth stressed that the store closures were part of the company’s broader effort to streamline operations and reduce costs. The focus moving forward will be on managing expenses, improving cash flow, and addressing challenges related to prescription reimbursements. Wentworth reiterated the company’s belief in a “sustainable, retail pharmacy-led operating model” but acknowledged that the recovery would take time.
Strong Prescription Sales Offset Retail Decline
While Walgreens saw a significant increase in prescription sales, its retail segment, excluding pharmacies, faced a decline. This drop was largely due to a weaker-than-expected cough, cold, and flu season. However, the company did experience growth in its U.S. healthcare business, despite scaling back some operations in this area.
Shares Surge on Positive Outlook
Despite the quarterly loss, Walgreens shares jumped by more than 16% in premarket trading on Friday, signaling renewed investor confidence. The recent increase in stock price marks a positive shift after the company’s underwhelming performance in 2023, when Walgreens saw its stock price tumble by approximately two-thirds, underperforming compared to the broader market.
Strategic Shifts in 2024
2024 has been a year of significant changes for Walgreens. The company started the year by slashing its quarterly dividend nearly in half to bolster its financial position and improve its balance sheet. Walgreens was also removed from the prestigious Dow Jones Industrial Average after just a few years on the index, signaling a challenging period for the company.
However, the company’s early recovery in stock price and strong first-quarter performance may signal a positive turning point. Walgreens continues to work through its turnaround strategy, including cost control, improving operational efficiency, and streamlining its store base. With a reaffirmed earnings forecast for fiscal 2025 and stronger prescription sales, Walgreens is cautiously optimistic about its recovery in the coming months.
