Walgreens Boots Alliance quarterly profits tumbled to $118 million – less than half of what they were a year ago – due to “significantly lower demand for COVID-related services,” the drugstore giant’s chief executive said Tuesday.
Until this year, COVID-19 related sales of vaccines and tests have been a big money maker for drugstore chains like Walgreens as millions of Americans flocked to their local drugstore for tests, vaccines and booster shots in the fight against the Coronavirus. But such sales are slowing dramatically as Americans return to normal life and the public health emergency in the U.S. ended last month after more than three years.
For Walgreens, the loss of COVID-related revenue contributed to profits that fell to $118 million, or 14 cents a share, in the fiscal third quarter ended May 31, from $289 million, or 33 cents a share in the year ago period. “0.8 million COVID-19 vaccinations were administered in the quarter compared to 4.7 million in the year-ago quarter,” Walgreens said in its fiscal third quarter earnings report.
“(Walgreens Boots Alliance) achieved 8.9 percent constant currency sales growth in the third quarter despite a challenging operating environment.” Walgreens chief executive officer Rosalind Brewer said of revenue that rose to $35.4 billion in the quarter. “Consumers continue to appreciate the value, convenience, and range of services provided by Walgreens and Boots. However, 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.”
Given the challenges, Walgreens lowered its earnings per share guidance for the rest of 2023 to “$4.00 to $4.05 from $4.45 to $4.65 previously, reflecting challenging consumer and macroeconomic conditions, and lower COVID-19 vaccine and testing volumes,” the company said.
To maintain growth and improve operations, Walgreens said it is taking “immediate actions” that include another $600 million in cost-cutting. Thus, Walgreens “transformational cost management program” target is now $4.1 billion by fiscal 2024 compared to an earlier goal of $3.5 billion.
“We are raising our cost savings program target to $4.1 billion and taking immediate actions to optimize profitability for our U.S. Healthcare segment,” Brewer said. “I am confident that our turnaround strategy positions (Walgreens Boots Alliance) to drive sustainable core growth and deliver long-term shareholder value.”
Walgreens U.S. Healthcare segment reported $2 billion in third quarter sales, “an increase of $1.4 billion compared to the year-ago quarter” thanks to growth at VillageMD, which now includes Summit Health, as well as “existing clinic growth and clinic footprint expansion,” the company said.
Walgreens-backed VillageMD earlier this year purchased Summit Health-CityMD for $8.9 billion to expand doctor-staffed clinics across the country. That transaction also included investments from Walgreens, which owns more than 50% of VillageMD, and Cigna’s Evernorth Health Services.