A customer looks at goods for sale in a Walgreens store in the Hollywood neighborhood of Los Angeles.
Christopher Lee | Bloomberg | Getty Images
The Walgreens Boots Alliance said Thursday that the pandemic had impacted third quarter results as fewer people went to the doctor and received prescriptions and the company spent more on staff and clean business.
The drugstore chain said its profits were mostly impacted by the UK. They were also put under pressure by increased sales of low-margin items, higher supply chain costs, and additional labor and store cleaning costs.
With the heavy losses, Walgreens announced that it would cut more than 4,000 jobs in the Boots UK and Boots Opticians businesses in the UK and close 48 optician centers. This corresponds to a staff reduction of 7% in these two parts of the company. Walgreens was already in the midst of a restructuring effort, but increased its annual cost savings goal to over $ 2 billion by 2022.
Walgreens shares fell about 7% on Thursday morning.
Walgreens warned that the pandemic would continue to challenge the business. Business leaders expect adjusted earnings per share of between $ 4.65 and $ 4.75 for the fiscal year, including Covid-19's adverse effects on the estimated $ 1.03 to $ 1.14 per share. The company said the estimate was based on June sales trends – but dramatic changes could prevent this.
The company said US business, which was a bright spot in the third quarter, is expected to generate stronger sales in the next quarter, but warned that pandemic factors such as increased home deliveries are squeezing margins.
The company suspended share buybacks and increased the dividend by 2.2%.
Walgreens reported against analysts' expectations for the third quarter ended May 31: based on refinitive data:
Earnings per share: 83 cents, adjusted for $ 1.17 expected sales: $ 34.63 billion expected, compared to $ 34.36 billion
In the third quarter, Walgreens recorded a net loss of $ 1.71 billion, or $ 1.95 per share, compared to a profit of $ 1.03 billion, or $ 1.13 per share, in the previous year.
The loss in the last quarter included 61 to 65 cents per share in terms of cost and impact related to Covid-19. With one-off adjustments, Walgreens earned 83 cents per share.
Revenue increased slightly to $ 34.63 billion from $ 34.59 billion in the previous year. Walgreens said Covid-19 cut sales by about $ 700 to $ 750 million in the quarter, mainly due to a decline in international stores.
Sales at Walgreens' US stores, which were open for at least one year, increased 3% year-over-year and exceeded expectations. According to a StreetAccount consensus estimate, analysts forecast a slight decline of 0.2%.
Sales in U.S. stores that have been open for at least a year increased for the pharmacy and retail areas of the store. Sales of pharmacies in the same business increased by 3.5% compared to the same period in the previous year. The company said brand inflation and an increase in special sales offset the decline in prescription volume due to Covid-19. Retail sales in the same store grew 1.9% in the quarter due to strong customer demand for vitamins and protective equipment such as masks.
Business in the UK was particularly affected. The company said that traffic to Boots UK's stores during April saw a dramatic decrease in home orders, despite the fact that the stores were seen as major retailers and remained open. In a press release, the company said that its beauty and fragrance switches were "effectively closed" and more than 100 stores in places such as airports were temporarily closed.
The drugstore chain has cut costs in some areas while experimenting with new business models. It is testing a new small format pharmacy and announced on Wednesday that it has signed a contract with VillageMD to open medical practices in 500 to 700 of its US stores over the next five years.
It is also trying to turn some of its more than 9,200 US stores into "neighborhood health destinations" – a term used to describe locations with health services along with a pharmacy. In some stores, for example, space is rented to the diagnostics company LabCorp, the optics company For Eyes and the weight loss company Jenny Craig. This goal is to be further promoted with the hundreds of primary care clinics staffed and operated by VillageMD.