Walgreens earnings: First quarter profits up on an adjusted basis, but drug store chain slashes dividend
Walgreens stock (WBA) sank as much as 12% Thursday before paring losses after saying it would slash its dividend by 48% — to $0.25 a share from $0.48 a share.
New CEO Tim Wentworth, formerly the CEO of pharmacy benefits manager Express Scripts (CI), said the move was a difficult decision supported by the board and one that is necessary as the company moves forward on its strategy to revamp stores and double down as a retail giant.
That strategy is, for now, not pivoting entirely away from the focus on retail stores, Wentworth said.
The company reported that first quarter sales for the period ending Nov. 30, 2023, rose 10% year over year totaling $36.7 billion, beating Wall Street expectations. Walgreens also beat the Street's expectations for adjusted earnings with $0.66 per share, compared to consensus estimates of $0.62 per share.
The adjusted earnings per share was a result of a tax hit from sales of shares of Cencora, formerly AmeriSource Bergen. The company is maintaining its 2024 earnings guidance of $3.20 to $3.50 per share.
Walgreens, the second largest retail pharmacy chain, has recently made moves in healthcare services and clinical trial offerings, prompting speculation the company would mimic its rival CVS (CVS) and get into the insurance business, as CVS did by acquiring Aetna.
"I do not want to write insurance, I don't know why we would do that," Wentworth said.
"But I also don't want to turn away from the store. I think one of the mistakes in the narrative (is) that we are going to, or are, turned away from the store. I think what we have to do is use the store as the point of engagement," he told Yahoo Finance.
Wentworth said he is invigorated by the potential Walgreens has as a trusted healthcare brand. The pharmacy counter, he added, is where trust begins, as evidenced by the willingness of customers to "put a needle in their arm" or consult on medical needs. (Wentworth also said that COVID-19 vaccine volumes haven't been as low as expected in the quarter.)
This all comes at a time when retail healthcare is competing with traditional facilities like doctor's offices and hospitals — and also e-commerce giant Amazon (AMZN).
But Wentworth thinks there is still room to win the battle if he can redefine how the store operates. He sees three ways to do this:
Pare down. "We've got too much of an assortment, for sure," he said. "And that's inefficient for a lot of reasons. ... The national brands would start competing to be the one that's on our shelves alongside our own brand.
The Walgreens brand. Walgreens is in a great position to be trusted as a private label, but it needs to be repackaged, Wentworth said, and the pharmacists could help with sales by recommending Walgreens branded products as needed.
"Turning the store managers loose." Managers don't currently get paid based on store performance, but Wentworth wants to change that.
International bright spot
Despite recent reports that Walgreens is looking to offload its UK chain, Boots, Wentworth said all options are still on the table. "I've got nothing to share on a decision, at all," Wentworth said, noting that it is one of the best-performing assets in the company.
But, he added, "Everything is on the table."
Walgreens was looking to unload Boots two years ago when market conditions weren't great, but that is no longer the case.
The international segment, meanwhile, performed well with first quarter sales of nearly $6 billion, or an increase of 12.4% year over year. Boots.com reported sales growth of 17.5%, accounting for 19% of Boots' total retail sales, Walgreens reported.
Anjalee Khemlani is the senior health reporter at Yahoo Finance, covering all things pharma, insurance, care services, digital health, PBMs, and health policy and politics. Follow Anjalee on all social media platforms @AnjKhem.
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