Walgreens Swings to Q3 Loss and Announces 4,000 Job Cuts

Walgreens Swings to Q3 Loss and Announces 4,000 Job Cuts
July 10, 2020


The pharmacy chain, Walgreens Boots Alliance Inc (Nasdaq: WBA), swung to a loss in the fiscal 2020 third-quarter as earnings were hit by a transition in sales to low-margin products, higher logistics costs, and an increase in expenses related to store cleaning and labor. While revenues surpassed estimates, earnings missed the Wall Street forecast. The company has also announced job cuts in the UK to preserve capital and remain well prepared to face the adverse scenario. Following weak 3Q 2020 results, the stock lost 7.76% or $3.28 to close at $39.01.

The Deerfield, Illinois-based health and well-being company reported third-quarter sales of $34.631 billion, an increase from $34.591 billion in the similar period last year.

For the quarter ended May 31st, 2020, the company reported a net loss of $1.708 billion, or $1.94 per share, compared with a net profit of $1.025 billion or $1.13 a share in the year-ago period.

Excluding impairment of goodwill and intangible assets and acquisition-related amortization charges, among others, Walgreens Boots Alliance posted adjusted earnings of $723 million in 3Q 2020, down from $1.338 billion in the comparable quarter of fiscal 2019. On a per-share basis, Q3 revenues declined to $0.83, from $1.47 per share in the prior-year period. The third-quarter loss included $0.61 to $0.65 per share in Covid-19 related expenses and negative impacts.

The company stated that its profits fell mainly because of poor performance in the UK. Walgreens revealed that COVID-19 dragged sales by roughly $700 million to $750 million in the reported quarter, primarily due to weak sales in international stores.

In the US, Comp sales rose by 3% from the comparable quarter last year and surpassed the StreetAccount forecasts calling for a decline of 0.2%.  In the pharmacy segment, same-store sales increased 3.5% compared with the same quarter last year. Walgreens pointed out that brand inflation and specialty sales growth offset the decline in prescription volumes because of the COVID-19 pandemic.

Same-store retail sales increased 1.9% in 3Q20, led by robust customer demand for safety gears such as masks and vitamins.

The company, which has been implementing a cost cut program, stated that it is upwardly revising its yearly cost-savings target to over $2 billion by 2022. Furthermore, Walgreens would expedite its restructuring plans, such as concentrating on increasing healthcare services and digital investments.

James Kehoe, company’s Global CFO, stated: “What’s important now is that we’re taking swift action, both operationally and financially.”

The company disclosed that foot traffic in Boots UK stores declined by roughly 85% in April because of lockdown enforced to limit the spread of COVID-19. Notably, the stores remained open as it comes under the essentials category. However, Walgreens beauty and fragrance outlets remained closed, in addition to a temporary shutdown of over 100 stores in places such as airports.

E-commerce sales of Boots online traffic surged by 120% and matched “Black Friday levels on a daily basis” in May. In June, online sales increased further. Considering the massive loss in the third quarter, the company has decided to slash over 4,000 jobs in Boots UK and Boots Opticians divisions in the UK, in addition to the permanent closure of 48 optician centers. The job-cut figure accounts for 7% of the company’s workforce in the aforesaid divisions of the company.

Walgreens continues to expect brisk sales in the US in the current quarter, but cautioned margins would remain under pressure due to COVID-19 related factors such as a rise in home deliveries.

A day before reporting the quarterly results, the company had inked an agreement with VillageMD to open clinics in 500 to 700 of its shops in the US over the next five years. The company is also piloting a small size pharmacy, but with better personalization and digitization for customers.

Moving forward, the company anticipates fiscal 2020 adjusted earnings of between $4.65 and $4.75 a share, including severe COVID-19 effects of $1.03 to $1.14 per share. The forecast is based on June sales trends.

The weak quarterly result is expected to keep the stock bearish in the near-term.

Technically, the stock is trading below its 50-day moving average, with resistance at 47.50. The next support is anticipated only near 30. Additionally, the stochastic oscillator reading is below 50. Therefore, we can expect the stock to remain in a downtrend in the near-term.

wba - technical analysis - 10th July 2020

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Janine is our editor for related stock market news. Andrew and Janine will be focusing on providing the latest trends and where the next hit could be

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