Finance
Walgreens lowers EPS guidance and plans to close more stores
Shares of Walgreens Boots Alliance (WBA) plunged 20% Thursday morning following news that the company cut its earnings guidance, the second time it has lowered expectations this year.
Walgreens now estimates earnings per share between $2.80 and $2.95, down from expectations of $3.20 to $3.35 last quarter – when it narrowed expectations at the top end.
Investors are keeping a close eye on the company as CEO Tim Wentworth executes a new strategy for the company. He’s focused on what he sees as revitalizing pharmacies and retiring health care through VillageMD — of which Walgreens is no longer a major stakeholder.
Amid the shift to downsizing unprofitable parts of the business, including announcing additional store closures, Walgreens is also battling an issue facing other smaller pharmacies: price pressure from prescription drugs.
“We are at the point where the current pharmacy model is not sustainable and the challenges in our operating environment require us to approach the market differently. We are having active discussions… to align incentives and ensure we be paid fairly,” Wentworth said. Thursday during an earnings call.
Company officials raised concerns about pharmacy benefit managers (PBMs) and their role in setting prescription prices, which put pressure on profit margins on many medications. Brand-name drugs, such as the popular diabetes and weight-loss drugs from Eli Lilly (LLY) – Mounjaro and Zepbound – and Novo Nordisk (NVO) – Ozempic and Wegovy – lower profits for pharmacies. Generic drugs may have lower costs, but higher profit margins. But the supply of generic drugs has been is declining due to persistent shortages.
The net effect is a reduction in profits for the company from prescriptions.
Stores and shrink
The company noted that 100% of its profits come from 75% of its stores, although Walgreens has yet to determine how many of the 25% will close.
Walgreens has also suffered shrinkage — a problem plaguing the retail world as a whole — amid inflation that reduces customers’ discretionary spending. That forces the company to reconsider its products. As a result, stores have reduced their offerings and switched to preferred partner brands and Walgreens’ own brand.
Company officials said on the call Thursday that the strategy going forward will consider where the company should direct its resources — maintaining clinical trials, incentivizing store managers, building specialty pharmacies — in a way that doesn’t “distract” from shareholder value and helps increase profits.
Anjalee Khemlani is the senior health reporter at Yahoo Finance, covering all things pharmaceutical, insurance, healthcare services, digital health, PBMs, and health policy and politics. Follow Anjalee on all social media platforms @AnjKhem.
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