Walgreens Slashes Earnings Guidance, Blames "Cautious Consumers," Shares Plunge To Decade Low

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by Tyler Durden
Tuesday, Jun 27, 2023 - 01:30 PM

Walgreens Boots Alliance Inc. shares plunged more than 8% in pre-market trading Tuesday in New York after the company slashed its full-year earnings guidance and missed Wall Street expectations for its fiscal third quarter due to "a more cautious and value-driven consumer." 

The drugstore chain and healthcare services company revised its earnings guidance lower to a range of $4.00 to 4.05 per share for the full year, down from its previous estimate of $4.65. Adjusted earnings were $1 per share, missing analysts' average estimate of $1.06. However, revenue in the quarter was $35.4 billion, beating analysts' expectations of $34.2 billion.

Year Forecast 

  • Sees adjusted EPS $4.00 to $4.05, saw $4.45 to $4.65, estimate $4.44 (Bloomberg Consensus)

Third Quarter Results

  • Adjusted EPS $1.00, estimate $1.06 

  • Sales $35.42 billion, estimate $34.21 billion 

  • US sales $27.87 billion, estimate $26.78 billion

  • International sales $5.6 billion, estimate $5.42 billion

  • Adjusted gross margin 18.8%, estimate 20.4%

"Our revised guidance takes an appropriately cautious forward view in light of consumer spending uncertainty while still demonstrating clear drivers of a return to operating growth next fiscal year," Chief Executive Rosalind Brewer said. She continued:

"We are raising our cost savings program target to $4.1 billion and taking immediate actions to optimize profitability for our US." 

Shares of Walgreens plunged 9%. If losses hold in the pre-market, the stock will hit the lowest level since 2010 in the cash session

The earnings miss is the first time Walgreens has missed Wallstreet analysts' expectations since July 2020. 

Brewer said, "Significantly lower demand for Covid-related services, a more cautious and value-driven consumer, and a recently weaker respiratory season created margin pressures in the quarter." 

Evercore ISI analyst Elizabeth Anderson called the company's third quarter "tough." She said, "The more significant trouble appeared starting with gross profit, which fell 150 bps yoy, driven by a similar step down in US Retail Pharmacy (less COVID contribution)." 

And perhaps this is yet another sign Goldman's Rich Privorosky is correct, "something is not quite adding up on the consumer" and asked, "Have we just run out of excess savings and are we returning to replenishing savings?"

In a note to clients earlier this month, Privorosky pointed to three excerpts from recent corporate transcripts (from Target, Walmart, and Costco) revealing consumers buckling under financial stress. So add Walgreens to the ever-expanding list. 

It's not like any of this is a surprise. After two years of persistent negative real wage growth, soaring credit card debt, depleted personal savings, and the highest interest rates in a generation, consumers are running on fumes