Walgreens shares soar more than 20% on big earnings beat, as drugstore chain cuts costs

In the United States, Walgreens Boots Alliance experienced a challenging fiscal first quarter ended November 30, 2024, reporting a net loss of $265 million, compared to a loss of $67 million during the same period the previous year. This significant financial downturn was primarily attributed to the costs associated with its ongoing store closure strategy, where Walgreens is in the process of shuttering around 1,200 U.S. locations, targeting mostly underperforming stores. During this quarter, they closed 70 stores and plan to close approximately 500 in the fiscal year. Despite the financial loss, Walgreens claimed to have achieved growth in its core business segments. The company's revenue for the quarter stood at $39.46 billion, up by 7.5% year-over-year, exceeding analyst expectations, which had forecasted revenue of $37.36 billion. The boost was primarily fueled by an increase in prescription sales, which rose by 10.4% due to higher branded drug prices and an increase in volume, even as retail sales of non-pharmacy products dropped by over 6% amid a weaker consumer spending environment, particularly for discretionary items. Walgreens’ Chief Executive Officer, Tim Wentworth, highlighted the early signs of progress in the company's long-term turnaround plan during a recent earnings call. He emphasized the company's focus on stabilizing the retail pharmacy business, stating that the success of modifying contracts with insurers had aided in managing pharmacy sales amid reimbursement challenges from both commercial insurers and government programs. Despite positive rhetoric regarding its strategies, analysts believe it remains premature to declare the company on a stable path toward recovery, as some fundamental issues persist in a tough economic landscape characterized by inflation and high-interest rates. In the context of financial performance, Walgreens reaffirmed its earnings guidance for fiscal 2025, maintaining expectations of adjusted earnings per share between $1.40 and $1.80; however, it did not disclose a revenue outlook. The stock faced pressure after a significant dividend cut at the beginning of 2024 aimed at strengthening the company’s balance sheet. This move was done to allow more room for operational expenditures and to navigate the current market conditions more effectively. Furthermore, the company’s stock price suffered drastically during the previous fiscal year, shedding around two-thirds of its value even as the general market, represented by the Dow Jones Industrial Average, gained approximately 13%. Overall, Walgreens is making strides in improving its operational effectiveness and addressing store closures systematically, but the ongoing challenges within the retail landscape continue to pose risks to its stabilization efforts. As the company moves forward, it will require careful management of costs and strategic planning to overcome the hurdles presented by this ongoing transformation.