Walgreens (WBA) earnings Q3 2020 swing to a loss


A customer views merchandise for sale at a Walgreens store in the Hollywood neighborhood of Los Angeles.

Christopher Lee | Bloomberg | Getty Images

Walgreens Boots Alliance said Thursday that the pandemic hurt its fiscal third-quarter results as fewer people went to the doctor and got prescriptions and the company spent more to staff and clean stores.

The drugstore chain said its profits were dragged down primarily by its non-U.S. business, particularly in the United Kingdom. They were also squeezed by increased sales of low-margin items, higher supply-chain costs and higher expenses for labor and store cleaning.

With the steep losses, Walgreens said it would cut more than 4,000 jobs in its Boots UK and Boots Opticians businesses in the United Kingdom, along with shutting 48 optician centers. That amounts to a 7% reduction of the workforce in those two parts of the company. Walgreens was already in the middle of a restructuring effort, but it raised its annual cost-savings target to more than $2 billion by 2022.

Walgreens shares were down nearly 7% Thursday morning.

Here’s what Walgreens reported compared with what analysts were expecting for the third quarter ended May 31, based on Refinitiv data:

  • Earnings per share: 83 cents, adjusted vs. $1.17 expected
  • Revenue: $34.63 billion vs. $34.36 billion expected

In the third quarter, Walgreens posted net loss of $1.71 billion, or $1.95 per share, compared with earnings of $1.03 billion, or $1.13 per share, a year earlier.

The loss in the latest quarter included 61 cents to 65 cents per share in Covid-19-related costs and impacts. With one-time adjustments, Walgreens earned 83 cents per share. 

Sales rose slightly to $34.63 billion from $34.59 billion a year earlier. Walgreens said Covid-19 caused sales to be about $700 million to $750 million lower in the quarter, mostly because of a decline at its international stores. 

Sales at Walgreens’ U.S. stores open at least a year were up 3% from the same period a year ago, beating expectations. Analysts predicted they would decline slightly by 0.2%, according to a StreetAccount consensus estimate. 

Sales at U.S. stores open at least a year increased for the pharmacy and retail parts of the store. Same-store pharmacy sales rose by 3.5% compared with the same time last year. The company said brand inflation and an increase in specialty sales offset the drop in prescription volumes because of Covid-19. Same-store retail sales grew by 1.9% for the quarter, as there was strong customer demand for vitamins and protective equipment like masks.

Its business in the United Kingdom particularly took a hit. The company said its traffic in Boots UK stores dropped dramatically in April during stay-at-home orders, even as the stores were deemed essential retailers and remained open. In a news release, the company said its beauty and fragrance counters “were effectively closed” and more than 100 stores in places like airports were temporarily closed.

The drugstore chain has been cutting costs in some areas, while also experimenting with new business models. It’s testing a new small-format pharmacy and on Wednesday, it announced it struck a deal with VillageMD to open doctor offices in 500 to 700 of its U.S. stores over the next five years.

It’s also sought to turn some of its more than 9,200 U.S. stores into “neighborhood health destinations” — a term it uses to describe locations with health-care services along with a pharmacy. In some stores, for example, it rents space to diagnostics company LabCorp, optical company For Eyes and weight loss company Jenny Craig. It wants to further that aim with the hundreds of primary-care clinics staffed and run by VillageMD.

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