July 25, 2024

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Walgreens Slumps After Executives Flag Downturn in Sales

(Bloomberg) — Walgreens Boots Alliance Inc. sank after executives said sales have started to decline at its drugstores as a result of the coronavirus pandemic, though the full impact on its business won’t be known for months.

U.S. consumers had raced early last month to stock up on drugs, cleaning supplies and toilet paper as they prepared to stay at home to avoid getting or spreading Covid-19. Now, that rush appears to be ebbing.

In the first three weeks of March, Walgreens’ comparable sales rose about 26%, Chief Financial Officer James Kehoe said on a call Thursday with Wall Street analysts, adding that health and grocery sales surged while discretionary categories like beauty slumped. However, sales began to fall in the last 10 days of March, declining at a mid-teens percentage rate.

“Obviously, if this trend continues for an extended period, it will quickly offset the sales uplift seen in the first 21 days of March,” Kehoe said.

Kehoe said the pharmacy business experienced similar trends, though less pronounced, with patients refilling prescriptions early.

Shares fell 7% to $40.01 at 10:27 a.m. in New York. Since the beginning of 2020, the stock had declined 27% through the close of trading Wednesday.

Earlier Thursday, Walgreens posted better-than-expected results for its second quarter but cautioned that the Covid-19 pandemic makes the future uncertain. The Deerfield, Illinois-based company said it would update its financial guidance in its next quarterly report. Previously, it had projected roughly flat growth in adjusted earnings per share.

Chief Executive Officer Stefano Pessina said while the company’s second-quarter results were better than expectations, “it is too early to know what the net impact of the Covid-19 pandemic will be on our performance for the year.”

Early Signs

The comments from Walgreens offer an early look at how businesses have been faring since the start of the coronavirus pandemic. While the company’s quarter ended on Feb. 29, before the worst of the Covid-19 outbreak in the U.S. and the most ambitious of the social-distancing efforts to contain it, executives indicated on the call with analysts that recent weeks have become more challenging.

Walgreens executives stressed they think the situation is temporary, but Pessina said if the pandemic lasts more than a month its effects will be longer-lasting.

“The world will be different later on,” he said. “Many things will have changed, their habits will be different.”

Walgreens had already been trying to bolster its digital strategy before the outbreak. It has since made delivery free on its website and expanded a partnership with delivery service Postmates, among other efforts.

In its second-quarter report, Walgreens said comparable sales at its U.S. stores rose 2.7% from a year earlier. At the pharmacy counter, sales rose 5.3%, which the company attributed to more expensive prescription drugs, more prescriptions filled and growth in its specialty business.

Walgreens removed e-cigarettes from its U.S. stores last fall and has said it will de-emphasize tobacco. Those decisions weighed on results, as comparable retail sales rose 0.6% in the quarter, or 1.9% when excluding these products.

Second-quarter adjusted earnings per share of $1.52, down from $1.64 a year earlier but better than the $1.46 Wall Street analysts expected, on average.

(Adds more comments from Walgreens executives beginning in 10th paragraph)

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