Walgreens Bites The Covid Dust

For the first time since July 2020, Walgreens Boots Alliance Inc WBA missed earnings expectations. Besides its disappointing fiscal third-quarter results, the retail pharmacy chain also slashed its full year earnings guidance in the face of lower consumer spending and a drop in demand for Covid vaccines and testing. Shares of Walgreens fell roughly 7% in premarket trading following the release. 

Fiscal Third Quarter Highlights

Despite the earnings miss, Walgreens topped revenue expectations as sales grew 8.6% YoY to $35.42 billion, exceeding the expected $34.24 billion as retail pharmacy and health-care segments expanded. However, due to a lower operating income, the resulting net profit amounted to $118 million as it tanked a 59% YoY, with adjusted EPS of $1.00, below the expected $1.07.

The U.S. retail pharmacy segment brought in $28 billion in sales as it grew 4.4% YoY with comparable sales at individual locations increasing 7% YoY. Pharmacy sales also increased 6.3% YoY with comparable rising nearly 10% due to price inflation in brand medications.

Total number of filled prescriptions rose only 0.1% for a total of 305 million with Covid vaccines administered during the period plummeting 83% YoY from 4.7 million to 800,000.

U.S. health-care segment contributed $2 billion to total revenue, which is $1.4 billion more compared to last year’s quarter. CEO Rosalind Brewer stated that the company will be increasing its cost-cutting program to $4.1 billion while working to improve profitability of the whole segment. 

The partnership with primary-care provider VillageMD was a bright spot, with revenue growing 22%. At-home health-care provider CareCentrix saw sales rising 15%, with the increase being owed to additional service offerings.

Full Year Guidance

Walgreens lowered its earnings guidance to a range between $4.00 to $4.05 per share while the prior forecast was in the range between $4.45 to $4.65 per share.

Even with the delay, the Amazon threat is looming

But the gloomiest cloud over Walgreens’ prospects is certainly the entry of Amazon.com Inc AMZN into healthcare. Disrupting this sector has been the titan’s dream for a long while and it seems that dream will be coming true this year. Back in February, Amazon acquired the primary health-care provider One Medical for $3.9 billion. But even Amazon had its set backs on this front, with Amazon Care being shut down last August after three years of service. But Amazon Clinic was launched last November, which is the creation based on the $750 million purchase of online pharmacy PillPack from 2018. Next on the list is the service of virtual care to help with common issues like allergies and acne. The marketplace concept on which Amazon based its business on, along with its customer-centric approach, is the perfect fit for succeeding in healthcare that is missing these two dimensions. However, last week Amazon paused the 50-state expansion of its clinic due to concerns expressed by lawmakers regarding its privacy practices.  But once Amazon finds a way, the U.S. healthcare sector as a whole will undoubtedly change. Amazon aims to make the health experience “easier, faster, more personal and more convenient”, as CEO Andy Jassy put it and this is bound to threaten Walgreens as well as every other player in the field.

DISCLAIMER: This content is for informational purposes only. It is not intended as investing advice.