Walgreens Boots Alliance (WBA) stock experienced a significant decline on Tuesday after the company issued a warning that its profits would be lower than initially anticipated. The decline in profits is attributed to dwindling demand for COVID-19 vaccines and a weakening consumer spending environment.
During the company’s third-quarter earnings call, Walgreens CEO Rosalind Brewer stated, “We saw lower-than-expected COVID-related demand. We had called out COVID as a wildcard heading into the quarter and have unfortunately seen less patient willingness to vaccinate.” In the most recent quarter, which ended on May 31, Walgreens administered 800,000 COVID-19 vaccines, representing an 83% decline from the same period last year.
As a result of declining COVID-related revenues and a “more cautious macroeconomic forward view,” Walgreens revised its full-year adjusted earnings per share guidance to a range of $4.00-$4.05, down from the previous range of $4.45-$4.65. This announcement caused shares of Walgreens to slump nearly 10%, closing at their lowest levels since 2010.
While the decline in COVID-related demand played a significant role in Walgreens’ troubles, the company also attributed its challenges to the overall macro economy. Brewer described the Walgreens consumer as “more cautious and value-driven,” stating that they are feeling the strain of higher inflation and interest rates, lower SNAP benefits and tax refunds, and an uncertain economic outlook. As a result, consumers are pulling back on discretionary and seasonal spending and responding strongly to promotional activity.
Walgreens’ third-quarter revenue of $35.42 billion slightly exceeded analyst estimates of $34.21 billion. However, the company’s adjusted earnings per share of $1.00 fell short of the $1.06 expected by analysts. Additionally, Walgreens’ gross margins for the quarter came in at 18.8%, below the Street consensus of 20.6%.
Analysts have noted that Walgreens faced challenges in its US Retail Pharmacy and Health segments, with sales beating expectations in the US Retail Pharmacy and International segments but falling below expectations in the Health segment. Gross profit also experienced a significant decline, falling 150 basis points year-over-year, primarily driven by a decrease in US Retail Pharmacy due to reduced COVID-related contributions.
The decline in Walgreens’ stock comes at a time when consumer spending is under scrutiny. Amazon’s warning of “cautious spending” during the first quarter earnings season has raised concerns, although corporate results have been mixed. BJ’s reported that comparable sales were tracking below expectations, while Target warned of a consumer discretionary slowdown. On the other hand, Walmart stated that its business remains healthy as it benefits from consumers trading down.
Despite these mixed results, retail sales have generally shown steady spending, leading economists to push back their forecast for a recession to 2023.
Investors will be closely watching Rite Aid’s upcoming earnings report, as well as Nike’s earnings report, to gain further insights into consumer spending trends.
Overall, Walgreens’ lower-than-expected profits and declining demand for COVID-19 vaccines highlight the challenges faced by the company in the current economic environment. The cautious and value-driven behavior of consumers, coupled with the impact of the pandemic, has significantly affected Walgreens’ financial performance.
How has the decrease in demand for COVID-19 vaccines impacted Walgreens Boots Alliance’s profits?
On Tuesday, Walgreens Boots Alliance (WBA) saw a notable drop in its stock value following a warning from the company about lower-than-expected profits. The decline in profits can be attributed to a decrease in demand for COVID-19 vaccines and a weakening consumer spending environment.
During the company’s third-quarter earnings call, Walgreens CEO Rosalind Brewer acknowledged the lower demand for COVID-related products, saying, “We saw lower-than-expected COVID-related demand. We had anticipated the unpredictability of COVID going into the quarter and unfortunately witnessed a decrease in patient willingness to get vaccinated.” In the most recent quarter, which ended on May 31, Walgreens administered 800,000 COVID-19 vaccines, marking an 83% decrease from the same period last year.
Due to the diminishing revenues from COVID-related products and a more cautious economic outlook, Walgreens adjusted its full-year adjusted earnings per share guidance to a range of $4.00-$4.05, down from the previous range of $4.45-$4.65. This announcement caused Walgreens’ shares to drop by nearly 10%, reaching their lowest levels since 2010.
While the decrease in COVID-related demand was a significant factor in Walgreens’ challenges, the company also attributed its difficulties to the overall macro economy. Brewer described Walgreens’ consumers as “more cautious and value-driven,” noting that they are feeling the impact of higher inflation and interest rates, reduced SNAP benefits and tax refunds, and an uncertain economic outlook. As a result, consumers are cutting back on discretionary and seasonal spending and are particularly responsive to promotional activities.
It’s concerning to see Walgreens’ stock drop as the demand for COVID-19 vaccines and consumer spending decline. This highlights the challenges faced by the company in the current economic climate.