Walgreens kicked off their FY 2025 on a sad trombone note–yet Mr. Market liked the music. In one of those contradictions that only make sense to Wall Street, Walgreens’s Q1 2025 earnings report, ending 30 Nov 2024 that reported last Friday, was dismal by any reading–but seemed hopeful to market makers who lifted the shares by over 25% as of midday 14 January.
US retail pharmacy sales and operating losses were the main drags on WBA’s results.
First, the highlights from the earnings release:
- Operating loss was $245 million, versus $39 million in Q1 2024. The increased loss was due to lower US retail sales and lapping prior year sale-leaseback gains. Another driver was the US Retail Pharmacy Footprint Optimization Program, unexplained in the release.
- Net loss was $265 million, versus $67 million in Q1 2024, driven by operating losses.
- It was a dismal quarter for US Pharmacy, which includes the retail stores, despite gains in pharmacy sales of 10.4% due to drug inflation. Retail sales (the front end of the store) decreased 6.2%.
- A bright spot was US Healthcare, which includes VillageMD, CareCentrix, and Shields, had a smaller operating loss of $325 million, versus same quarter in FY 2024’s $436 million. VillageMD sales increased 9%, CareCentrix increased 16% and Shields increased 30%.
- Another bright spot was Boots UK’s performance. Their ‘comparable’ pharmacy sales increased 10.9% versus prior year, retail sales 8.1 percent% and grew across all categories. Boots.com sales–22% of total retail sales–were up 30% boosted by Black Friday.
So why did Mr. Market kvell over this and immediately boost the same shares that fell 63% in 2024? Mostly from the earnings call with CEO Tim Wentworth and other C-levels:
- Results beat the Street estimates (LSEG survey):
- Earnings per share: 51 cents adjusted vs. 37 cents expected
- Revenue: $39.46 billion vs. $37.36 billion expected
- Guidance for FY 2025 estimates adjusted earnings per share at $1.40 to $1.80 per share with revenue in the $150 billion range.
- CEO Tim Wentworth confirmed that retail locations will continue to close and will accelerate. 70 were closed in Q1 2025.
- Their goal is to close 1,200 locations from 2024 through 2026, with 450 to 500 underperforming locations to shutter in 2025. Walgreens currently has around 8,500 retail locations.
- The sale of VillageMD is underway but no potential acquirers were mentioned on the call. Separately for Summit Health and CityMD, Walgreens is considering “best options” such as sale or restructuring. These units were snapped up by VillageMD in January 2023.
- They are working to turn around retail sales which are declining due to consumers restricting spending due to inflation and the value in using online retailers.
- One measure is around labor scheduling being redesigned to improve the in-store experience. Walgreens is launching a new scheduling model in about 200 locations based on store demand patterns.
- In pharmacy, they plan to roll out digital and virtual check-in for patients plus micro-fulfillment centers for prescription processing.
Interestingly, Walgreens in the US is not promoting online sales–unlike Boots UK which has done well with it.
There was no comment on the reported consideration of sale to a private equity (PE) firm such as Sycamore Partners [TTA 10 Dec 2024, 8 January], which would remove it from the NYSE.
Street analysts are boosting the stock now, but state that they need to see a few more quarters of stable performance to feel more confident about WBA’s future. Whether that will happen and that the US retail/pharmacy picture improves is to be determined. HIStalk, CNBC, FierceHealthcare, Healthcare Dive
Most Recent Comments