On Tuesday, Walgreens Boots Alliance announced a cut to its profit outlook for the year. The pharmacy chain attributed the change in forecast, in part, to significantly lower demand for Covid-19 test kits and vaccines.
Despite sales being up by 8.6% ($35.4 billion) compared to the same period last year, the third-quarter figures fell below analysts’ expectations with adjusted earnings at $1 per share, below the anticipated $1.07 a share.
The unexpected earnings dip has resulted in Walgreens (ticker: WBA) adjusting its adjusted earnings projections for the full year to $4 to $4.05 a share from $4.45 to $4.65.
The retailer explained that the dip in profits was due to decreased Covid-19 vaccination and testing volumes; this, coupled with mounting labor costs, hit the latest quarter’s profits. Walgreens, like many pharmaceutical companies, is grappling with a labor shortage and continues to operate some pharmacies on reduced hours.
Walgreens Sees Decline in Demand for Pandemic-Related Services
Walgreens has reported a drop in demand for pandemic-related products and services. The company stated that shoppers are becoming more cautious and are spending more on value products. Additionally, the volume of visits to CityMD, an emergency-care unit owned by the company, decreased as there have been fewer respiratory diseases this season.
Despite this decline, Walgreens is looking towards the future and has announced plans to expand its cost-cutting program. The company is aiming to accumulate savings of $4.1 billion by fiscal year 2024 by adding an immediate $600 million to their cost-cutting strategy.
As a challenge to CVS Health, Walgreens has been increasing its presence in the healthcare industry. In November of 2020, Walgreens’ VillageMD unit purchased Summit Health, the parent company of CityMD, for $8.9 billion. This transaction came in response to CVS’s acquisition of Signify Health for $8 billion.
Shares of Walgreens fell by 11% to $31.59 after the opening of the market on Monday.
Looking Ahead
The decline in demand for pandemic-related services has led Walgreens to expand its cost-cutting strategy, with plans to accumulate savings of $4.1 billion by fiscal year 2024. Although investors are concerned about what’s ahead, the company remains committed to pushing deeper into the healthcare industry. With its recent acquisition of Summit Health, Walgreens aims to rival CVS Health and increase its presence in the healthcare sector.
Conclusion
While pandemic-related demand has decreased, Walgreens remains optimistic about its future in the industry. By adapting to changing consumer behavior and expanding its healthcare offerings, the company hopes to continue its growth and success in the years to come.
