On a recent Friday, Walgreens Boots Alliance presented a fiscal first-quarter report that surpassed market expectations despite grappling with significant operational challenges. For the three-month period that concluded on November 30, the company recorded adjusted earnings per share of 51 cents, beating analyst forecasts of 37 cents. Additionally, revenue reached $39.46 billion, exceeding projections of $37.36 billion. This performance is noteworthy, given the backdrop of ongoing transformations within the company.
Although Walgreens celebrated these substantial earnings beats, it has opted to maintain its earnings guidance for fiscal 2025 within a range of $1.40 to $1.80 per share, which suggests a cautious approach to future profitability. Interestingly, the company chose not to issue sales guidance in its latest financial disclosure, indicating a strategic shift towards managing expectations in an unpredictable market environment.
Restructuring and Store Closures
The current quarter results signify a response to a tumultuous past year, characterized by pressures from pharmacy reimbursements, declining consumer spending, and complications stemming from its foray into primary care services. Notably, Walgreens revealed a net loss of $265 million, equivalent to 31 cents per share, compared to a net loss of $67 million or 8 cents per share from the previous year. This downturn is largely attributed to the higher operational costs incurred as the company embarks on a multiyear initiative to close around 1,200 underperforming retail pharmacies—500 of which are slated for closure within fiscal 2025 alone.
CEO Tim Wentworth remarked on the company’s “disciplined execution” regarding its strategic priorities, emphasizing the need to stabilize the retail pharmacy sector amid turbulent market conditions. The commitment to optimizing its store footprint and controlling operational costs is imperative as Walgreens attempts to navigate its restructuring path.
The latest figures exhibit growth across all three of Walgreens’ primary business segments, contributing to the overall financial uplift. The U.S. retail pharmacy division—the backbone of Walgreens’ operations—reported $30.87 billion in sales, reflecting a significant 6.6% increase year-over-year. Analysts had anticipated sales of approximately $29.21 billion, indicating a strong performance relative to market expectations.
A closer examination reveals that pharmacy sales surged by 10.4%, with comparable pharmacy sales increasing by 12.7%, largely driven by price inflation in brand-name medications. However, while pharmacy sales showcased resilience, the retail side of the business faced setbacks, exhibiting a 6.2% decline in sales from the previous year. Analysts attributed this decline to a less severe cough, cold, and flu season, alongside diminishing sales across non-essential product categories.
In addition to pharmacy revenue, Walgreens saw its U.S. healthcare unit generate $2.17 billion in sales during the fiscal first quarter, marking an impressive 12% growth compared to the same period in the prior fiscal year. This growth is, in part, reflective of expansions in their primary care operations through VillageMD and the specialty pharmacy segment represented by Shields Health Solutions. The emergence of specialty pharmacy practices—focused on serving patients with complex medical conditions—could provide a long-term avenue for lucrative growth in an evolving healthcare landscape.
Moreover, Walgreens’ international division contributed significantly, reporting $6.43 billion in sales—a 10.2% increase year-over-year—again exceeding analyst expectations. Their U.K. subsidiary, Boots, also showcased growth, with a 4.5% uplift in sales, underscoring the positive reception of Walgreens’ expansions abroad.
As Walgreens continues to evolve amidst a complicated backdrop of operational restructuring and challenging market dynamics, the early signs of recovery in its core business sectors present a cautiously optimistic outlook. However, the company’s decision to maintain its fiscal guidance without issuing new sales projections reflects a prudent acknowledgment of the uncertainties that lie ahead.
Walgreens appears to be navigating through a strategic recovery phase, aiming to stabilize and innovate its business model in an ever-changing retail and healthcare environment. While the company’s stock reacted positively to the quarterly earnings, stakeholders will closely monitor its execution of restructuring plans and potential impacts on long-term sustainability and profitability.