Walgreens Boots Alliance (WBA, Financial) shares have plummeted to 25-year lows following a Q3 earnings miss and downgraded FY24 adjusted EPS guidance. The stock has dropped over 75% since January 2022 highs and has halved in value in 2024 alone.
The core issue for WBA is a weakened end consumer, impacting retail demand. CVS Health (CVS, Financial) has also highlighted a challenging demand environment for front-of-store sales in recent quarters. Additionally, Rite Aid's Chapter 11 bankruptcy filing in October, leading to the closure of hundreds of locations, has created a void in the retail pharmacy sector.
WBA has no plans to open new stores to capitalize on the vacancies left by Rite Aid. Instead, the company is finalizing a multi-year footprint optimization program, closing about a quarter of its U.S. stores. This reflects the grim retail pharmacy demand landscape, pushing consumers to consolidate shopping trips with mass merchants like Walmart (WMT, Financial) or shift to e-commerce options such as Amazon Pharmacy (AMZN, Financial).
- In Q3, WBA's U.S. Retail Pharmacy segment saw a 2.3% year-over-year revenue increase to $28.5 billion, driven by a 5.7% comp growth in pharmacy due to higher branded drug prices and script growth.
- The U.S. Healthcare segment performed better, with a 7.6% year-over-year sales increase to $2.1 billion. Investments and acquisitions, including VillageMD and Shields, boosted sales by 7% and 24%, respectively. However, this segment accounts for just 6% of WBA's total sales, resulting in modest overall growth of 2.8% year-over-year to $36.4 billion.
- Adjusted operating income dropped over 36% year-over-year in constant currency, with a nearly 50% decline in U.S. Retail Pharmacy. Consequently, WBA's Q3 adjusted EPS fell by 37% year-over-year to $0.63.
- WBA has lowered its FY24 adjusted EPS outlook to $2.80-2.95 from $3.20-3.35, citing continued weak consumer demand in Q4. However, the company maintained its FY24 U.S. Healthcare segment adjusted EBITDA breakeven forecast and continues to review its Boots U.K. business.
WBA's Q3 performance highlights significant challenges, including the closure of 25% of its U.S. stores, indicating a troubled retail market that may take time to recover. While the Walgreens brand remains strong, without improved demand, the upcoming quarters could mirror recent volatility.
