Walgreens (WBA) Q4 2022 earnings

Walgreens Boots Alliance on Thursday exceeded fiscal fourth-quarter sales expectations, as the drugstore chain turns itself into more of a health-care focused company.

The company said it anticipates full-year adjusted earnings per share of $4.45 to $4.65 in the coming fiscal year, which is about in line with what Wall Street expected. Yet Walgreens said its business growth will face tough comparisons as it laps strong demand for Covid vaccines and gets hits by the strength of the dollar.

Walgreens reported its earnings on the same day as a hotter-than-expected inflation report from the government. On a call with investors, Walgreens CEO Roz Brewer acknowledged the tougher economic backdrop, but said the company is in a good position. Unlike big-box retailers, she said the drugstore chain does not depend on the sale of big-ticket items. It has expanded alternative revenue streams, including its advertising business. And she said it sells many “need now categories” from toothpaste to medication.

Plus, she said, more people recognize the importance of investing in their health.

“With inflation at four-decade highs, consumers are expressing uncertainty about the future and seeking value,” she said. “At the same time, we know that health and wellness will always be a priority and increasingly so after Covid-19.”

Here’s what the company reported compared with what analysts were expecting for the fiscal fourth quarter ended Aug. 31, based on Refinitiv data:

  • Earnings per share: 80 cents, adjusted, vs. 77 cents expected
  • Revenue: $32.45 billion vs. $32.09 billion expected

Sales declined from the previous year’s quarter. Including certain costs, Walgreens swung to a loss in the three-month period. Its net loss was $415 million, or 48 cents per share, compared with a net income of $627 million, or 72 cents per share, a year earlier.

On a call with investors, Global CFO James Kehoe said Walgreens’ profit took the biggest hit from a $780 million non-cash impairment charge in its Boots UK business related to trademarks and licenses. It also had costs associated with its long-term cost management program, as it shuttered some stores. A year ago, Walgreens laid out a cost savings goal of $3.3 billion by 2024.

Walgreens has made significant investments to transform from a major drugstore chain to a large health-care company. It is opening hundreds of doctor offices with VillageMD. It invested $5.2 billion to become majority owner of the primary-care company. It recently announced plans to accelerate acquisitions of two other companies: CareCentrix, which coordinates care and benefits for at-home care, and Shields Health Solutions, a specialty pharmacy company.

Brewer said in a news release that the coming fiscal year “will be a year of accelerating core growth and rapidly scaling our U.S. Healthcare business.”

At the end of the quarter, VillageMD has 334 doctor offices — including 152 that are next to Walgreens stores. Walgreens also has 70 stores with Health Corners, a designated space where a registered nurse or pharmacist can schedule a mammogram, screen a patient for high blood pressure or diabetes or help with other health-care needs.

Walgreens had a lower bar to clear for quarterly expectations, as Wall Street tempered anticipated demand for Covid shots and tests to cool, said John Boylan, an equity research analyst for health care at Edward Jones. He said the company’s U.S. health care unit, the growth engine Walgreens is leaning on, shows some very positive signs in the early going.

On Thursday, Walgreens raised its outlook for the health care division. It said it now anticipates a sales target of $12 billion, rather than $11 billion, for fiscal 2025. It said the business is expected to be profitable, on an adjusted basis, by 2024. The company has also made leadership announcements, tapping CareCentrix CEO John Driscoll as president of its U.S. Healthcare division and elevating Walgreens Chief Medical Officer Kevin Ban to its executive committee.

“We still believe it is far too early to accurately determine the long-term profitability and sales growth trajectory for U.S. Healthcare,” Boylan said in an email. “In the meantime, Walgreens’ competition is not remaining still, and we expect competition for not only customers but also acquisition and partnership opportunities.”

Covid vaccines, which boosted Walgreens’ sales and foot traffic, have fallen off significantly. In the fourth quarter, the drugstore chain administered 2.9 million vaccinations. That’s a decline from 4.7 million vaccines in its fiscal third quarter, and a sharp drop from the 15.6 million vaccines in the first quarter and the 11.8 million in the second quarter.

Sales in Walgreens’ retail and pharmacy division in the U.S. decreased by 7.2% to $26.7 billion in the fourth quarter compared with the year-ago period. Comparable sales rose 1.6%, however.

Comparable prescriptions, excluding immunizations, were roughly flat with the year-ago period. Prescription volume got a lift from medications needed for seasonal illnesses and refills of maintenance medications, but were hurt by reduced store hours due to staffing shortages, Kehoe said on the investor call.

Its international business took a big hit from currency headwinds. It had fourth quarter sales of $5.1 billion, a drop of 6.6% from the year-ago period. That included a 13.3% adverse currency impact.

As customers come back to stores, Walgreens also said it is investing in its workforce to return to normal operating hours. However, it has continued to see some changes in shopping habits. Its U.S. digital sales growth grew 14% in the fourth quarter, on top of an 82% increase in the year-ago period.

As of Wednesday’s close, Walgreens shares are down nearly 39% so far this year. That trails behind the S&P 500, which is down about 25%. Shares of Walgreens closed Wednesday at $31.94, down about 2%.

Read the company’s earnings release here.

This story is developing. Please check back for updates.