Walgreens Accelerates Cost-Cutting Measures as Earnings Dip

Company reports mixed quarterly and fiscal year results

10/13/2023

Walgreens reported softer retail sales during the latest quarter and for the fiscal year, fueled by inflation woes, declining COVID-related trips and higher shrink,

The financial health of Walgreens Boots Alliance (WBA) is a work in progress, as the company shared results of its fourth quarter and full fiscal year. While quarterly sales grew 9.2% and fiscal year sales rose 4.8% on a year-over-year (YoY) basis, earnings came in lower than expected. Adjusted net earnings were down 17.1% for the quarter and 20.5% for the year.

According to WBA, post-COVID and inflation-influenced shopper pullbacks are likely to persist through at least some of the next fiscal year. The company expects adjusted earnings per share to range between $3.20 and $3.50 for FY24.

[Read more: “Walgreens Pharmacists Walk Off the Job”]

The tepid results come at time of change for the company, as it expands beyond retail pharmacy and into more health and wellness services. WBA has broadened its reach with recent acquisitions in that space, investments that are affecting the short-term financials.

The company is running a parallel cost-cutting initiative. WBA reported that it is making progress reining in costs and shared that it is working to reduce expenses and keep a lid on capital expenditures.

Interim CEO Ginger Graham, who stepped in following the September departure of Rosalind Brewer and who will return to her board seat when newly-named chief executive Tim Wentworth takes over on Oct. 23, said that WBA’s results can be measured in different ways. “Our performance this year has not reflected WBA’s strong assets, brand legacy, or our commitment to our customers and patients,” she said.

Graham cited the cost-cutting moves that are already poised to move the earnings needle. “In just six weeks, we have taken a number of steps to align our cost structure with our business performance, including planned cost reductions of at least $1 billion, and lowered capital expenditures by approximately $600 million. We anticipate seeing the impact of these actions in fiscal 2024, beginning in the second quarter. We are also intently focused on accelerating our profitability in the U.S. health care segment,” she explained.

At the store level, Walgreens took in $27.7 billion in sales during the fourth quarter, with comps coming in 5.7% higher on a YoY basis. Pharmacy sales rose 6.4% in the last quarter, while retail sales dipped 4.3%. Retail sales comps also declined 3.3% compared to Q4 in 2022. Those decreases were attributed to “macroeconomic-driven consumer pressure,” a weaker respiratory season and a downtown in sales of COVID-19 test kits. Ongoing issues with shrink contributed to that trend, especially in categories of personal care, beauty and health and wellness.

Deerfield, Ill.-based Walgreens, which operates nearly 9,000 retail locations across the United States, Puerto Rico and the U.S. Virgin Islands, is No. 5 on The PG 100, Progressive Grocer’s 2023 list of the top food and consumables retailers in North America.