Shares of Walgreens Boots Alliance fell around 6% on Thursday, with the drugstore chain attributing strong second-quarter sales to the omicron variant and warning it will take time for its healthcare investments to pay off .
The drugstore chain has attracted foot traffic and increased sales during the pandemic, especially when Covid cases rise. Shoppers visited stores and the company’s website to source vaccines and buy home Covid tests.
However, as the tailwinds from the pandemic appear to be fading, some investors fear Walgreens may be losing momentum. Walgreens chairman John Standley said on the company’s earnings call that demand for Covid tests had slowed since January and February.
The pace of vaccinations has also slowed. The pharmacy chain said it administered 11.8 million Covid vaccines in the second quarter, compared to 15.6 million in the first quarter. Walgreens has administered a total of more than 62.8 million Covid vaccines to date.
Standley said there was still “a good steady flow”, and he said the pharmacy chain started offering fourth Covid shots on Wednesday.
The company is also in the early days of its transformation into a more healthcare-focused business – an effort that will include the opening of hundreds of doctor’s offices, major store renovations and the hiring of more medical staff. .
Chief Financial Officer James Kehoe reiterated the company’s outlook for low single-digit growth in adjusted earnings per share. On a call about the results, he said it usually takes about two years for a medical practice to grow. However, once Walgreens’ medical practices mature, he said the company will experience significant benefits, including higher prescription volumes and lower medical costs.
Here’s what Walgreens reported versus what analysts expected for the second quarter ended Feb. 28, based on Refinitiv data:
- Earnings per share: $1.59 adjusted vs. $1.40 expected
- Income: $33.76 billion vs $33.4 billion expected
During the quarter, net income fell to $883 million, or $1.02 per share, of $1.03 billion, or $1.19 per share, a year ago.
Excluding items, the company earned $1.59 per share, outpacing the $1.40 expected by analysts polled by Refinitiv.
Sales reached $33.76 billion of $32.78 billion a year earlier, and exceeded the $33.4 billion expected by analysts.
Walgreens said U.S. retail same-store sales jumped 14.7% in the three-month period from the year-ago period, the biggest increase in more 20 years old. The company said it saw growth across all categories – particularly in health and wellness with home Covid tests and cough, cold and flu related products, as well as personal care and beauty items.
Sales of over-the-counter drugs for common illnesses had fallen sharply at major pharmacies, including rivals CVS Health and Rite Aid, during the early parts of the pandemic as people wore masks and spent more time at home. This trend appears to be reversing as people dine out, return to the office, and mingle with other people again.
At its UK-based Boots chain, same-store retail sales jumped 22% year-on-year, with market share gains across all major categories.
Walgreens’ online sales in the United States increased 38% in the second quarter, on top of the 78% growth recorded a year ago. Much of the growth in the last quarter came from 3.9 million same-day pickup orders, the company said.
Led by CEO Roz Brewer, the former chief operating officer of Starbucks, the retailer has taken steps to become a healthcare company. It acquired the majority stake in VillageMD, the primary care company that opens hundreds of doctor’s offices in Walgreens stores. Walgreens is transforming parts of some stores into Health Corners, where customers can go for a medical consultation with a pharmacist or nurse. The company is opening automated facilities where robots fill prescriptions, freeing up pharmacists’ time to provide more medical care.
Walgreens is also set to receive Food and Drug Administration clearance this week for a fourth Covid vaccine for people aged 50 and over or who are immunocompromised.
Kehoe said on an earnings call that Walgreens doesn’t know how many shots that could total and didn’t factor them into its forecast. He said the company had been able to pass on rising costs to its customers, despite inflation and high sea freight prices.
Walgreens said it was still considering the future of its UK-based Boots pharmacy chain. Earlier this year, Brewer confirmed that Walgreens was exploring strategic options for Boots, including a potential sale, as the company focuses on its US healthcare business.
As of Wednesday’s close, Walgreens shares were down 9% so far this year. Shares closed Wednesday at $47.46, bringing the company’s market value to $40.97 billion.
Read the company’s press release here.
This story is developing. Please check for updates.