Walgreens stock cuts earnings outlook after ‘lower than expected’ COVID-related demand

Walgreens Boots Alliance (WBA) shares fell on Tuesday as the company warned that it expects profit to be lower than initially thought, amid declining demand for COVID-19 vaccines and a weakened consumer environment.

“We saw lower-than-expected Covid-related demand,” Walgreens CEO Rosalind Brewer said on the company’s third-quarter earnings call Tuesday. “We had called out COVID as a wildcard heading into the quarter and have unfortunately seen less patient willingness to vaccinate.”

Walgreens administered 800,000 COVID-19 vaccines in the most recent quarter, which ended May 31[ads1]. This represents a decrease of 83% from the same period last year.

Citing declining Covid-related revenue and a “more cautious macroeconomic outlook,” Walgreens cut its full-year adjusted earnings per share guidance to a range of $4.00-$4.05 from a range of $4.45-$4.65.

Shares of Walgreens fell nearly 10% on the news, closing at their lowest levels since 2010.

For the third quarter, Walgreens had revenue of $35.42 billion, slightly above analyst estimates of $34.21 billion. The company’s adjusted earnings per share of $1.00 were lower than the $1.06 the Street had expected. Walgreens’ gross margins came in at 18.8% for the quarter, below the Street consensus of 20.6%, per Evercore ISI.

“Walgreens had a tough FY3Q,” Evercore ISI analyst Elizabeth Anderson wrote in a note on Tuesday. “Sales took a hit in US Retail Pharmacy and International, with Health coming in under. The more significant issues emerged, starting with gross profit, which fell 150 bps YoY, driven by a similar decline in US Retail Pharmacy (minus the COVID contribution). “

A ‘more cautious’ consumer

While less-than-expected COVID-related demand affected Walgreens, the company also attributed the problems to the overall macro economy. Brewer described the Walgreens consumer as “more cautious and value-driven.”

“Our customer is feeling the brunt of higher inflation and lower interest rates [SNAP] benefits and tax refunds, and an uncertain economic outlook,” Brewer said. “They are pulling back on discretionary and seasonal spending and responding strongly to promotional activity.”

Walgreens stock cuts earnings outlook after ‘lower than expected’ COVID-related demand

This June 25, 2019, file photo shows a sign outside a Walgreens Pharmacy in Pittsburgh. (AP Photo/Gene J. Puskar, file)

Consumer spending has been in focus since the start of the first quarter earnings season when Amazon warned about “careful spending”. However, corporate results have been mixed.

BJ’s ( BJ ) told investors that comparable sales followed below comps in the current quarter. Target warned of a consumer discretionary slowdown. But Walmart ( WMT ) said its business is healthy as it benefits from some consumers shopping down.

By and large, retail sales have largely shown steady spending, and economists are increasingly pushing out the forecast for a recession in 2023.

Investors will expect another look at consumer spending on Thursday when fellow drugstore retailer Rite Aid ( RAD ) is expected to report before the bell. Retailer Nike ( NKE ) is also expected to report earnings after hours on Thursday.

Josh Schafer is a reporter for Yahoo Finance. Follow him on Twitter @_JoshSchafer

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