December 2, 2022


Delighting home maniacs

Walgreens (WBA) Up 6.4{2bcf6c72702b5c79c6d60e2b201b92505312452d06f0e1ed088ab13b8bc14c0a} Since Last Earnings Report: Can It Continue?

Walgreens (WBA) Up 6.4{2bcf6c72702b5c79c6d60e2b201b92505312452d06f0e1ed088ab13b8bc14c0a} Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Walgreens Boots Alliance (WBA). Shares have added about 6.4{2bcf6c72702b5c79c6d60e2b201b92505312452d06f0e1ed088ab13b8bc14c0a} in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Walgreens due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Walgreens Boots Q3 Earnings Lag Estimates, Margins Down

Walgreens Boots reported adjusted earnings per share of 83 cents for third-quarter fiscal 2020, down 43.8{2bcf6c72702b5c79c6d60e2b201b92505312452d06f0e1ed088ab13b8bc14c0a} year over year (down 43.4{2bcf6c72702b5c79c6d60e2b201b92505312452d06f0e1ed088ab13b8bc14c0a} at CER). Also, the figure lagged the Zacks Consensus Estimate by 24.5{2bcf6c72702b5c79c6d60e2b201b92505312452d06f0e1ed088ab13b8bc14c0a}.

GAAP loss per share was $1.95 on a year-over-year basis against earnings per share of $1.13. The U.K. market was the most impacted by COVID-19, which required a review resulting in non-cash impairment charges of $2 billion related to goodwill and intangible assets in Boots UK.

Total Sales

Walgreens Boots recorded total sales of $34.63 billion in the fiscal third quarter, up 0.1{2bcf6c72702b5c79c6d60e2b201b92505312452d06f0e1ed088ab13b8bc14c0a} year over year and 1.2{2bcf6c72702b5c79c6d60e2b201b92505312452d06f0e1ed088ab13b8bc14c0a} at CER. The top-line figure exceeded the Zacks Consensus by 1.2{2bcf6c72702b5c79c6d60e2b201b92505312452d06f0e1ed088ab13b8bc14c0a}.

This year-over-year growth was led by improvement within the Retail Pharmacy USA comparable sales growth of 3{2bcf6c72702b5c79c6d60e2b201b92505312452d06f0e1ed088ab13b8bc14c0a}. However, adverse impact of COVID-19 on sales of $700-$750 million (almost entirely from the company’s non-U.S. businesses) is also included in the fiscal third-quarter results.

Segments in Detail

Walgreens Boots reports through three segments — Retail Pharmacy USA, Retail Pharmacy International and Pharmaceutical Wholesale.

Retail Pharmacy USA

The segment’s sales totaled $27.4 billion in the fiscal third quarter, highlighting an improvement of 3.2{2bcf6c72702b5c79c6d60e2b201b92505312452d06f0e1ed088ab13b8bc14c0a} year over year.

Prescriptions filled in the third quarter fell 1.3{2bcf6c72702b5c79c6d60e2b201b92505312452d06f0e1ed088ab13b8bc14c0a} year over year. In comparable stores, prescriptions filled (adjusted to 30-day equivalents) increased 0.4{2bcf6c72702b5c79c6d60e2b201b92505312452d06f0e1ed088ab13b8bc14c0a} from the year-ago quarter. This represents a slower rate of growth compared to the fiscal second quarter due to COVID-19-led stay-at-home orders. This led to a fall in doctor visits and hospital admissions. However, the prescription volume trend has shown steady improvement since May-end.

Pharmacy sales were up 4.6{2bcf6c72702b5c79c6d60e2b201b92505312452d06f0e1ed088ab13b8bc14c0a} from the year-ago quarter on higher brand inflation and a 15.9{2bcf6c72702b5c79c6d60e2b201b92505312452d06f0e1ed088ab13b8bc14c0a} rise in specialty sales, which offset the COVID-19 prescription volume impact.

Pharmacy sales at comparable stores improved 3.5{2bcf6c72702b5c79c6d60e2b201b92505312452d06f0e1ed088ab13b8bc14c0a} year over year.

Retail sales edged down 0.7{2bcf6c72702b5c79c6d60e2b201b92505312452d06f0e1ed088ab13b8bc14c0a} (including the impact of the store closures), while comparable retail sales inched up 1.9{2bcf6c72702b5c79c6d60e2b201b92505312452d06f0e1ed088ab13b8bc14c0a}, year on year. Excluding tobacco and e-cigarettes, comparable retail sales increased 3.5{2bcf6c72702b5c79c6d60e2b201b92505312452d06f0e1ed088ab13b8bc14c0a}.

Retail Pharmacy International

Revenues at the Retail Pharmacy International division declined 31.5{2bcf6c72702b5c79c6d60e2b201b92505312452d06f0e1ed088ab13b8bc14c0a} on a year-over-year basis to $1.9 billion in the fiscal third quarter. Sales were down 26.2{2bcf6c72702b5c79c6d60e2b201b92505312452d06f0e1ed088ab13b8bc14c0a} at CER due to a 27.7{2bcf6c72702b5c79c6d60e2b201b92505312452d06f0e1ed088ab13b8bc14c0a} fall in Boots U.K. sales, resulting from pandemic-led severe disruption in foot traffic at stores.

Boots UK’s comparable pharmacy sales were down 48{2bcf6c72702b5c79c6d60e2b201b92505312452d06f0e1ed088ab13b8bc14c0a} at CER, while comparable pharmacy sales slid 1{2bcf6c72702b5c79c6d60e2b201b92505312452d06f0e1ed088ab13b8bc14c0a} at CER in the reported quarter.

Pharmaceutical Wholesale

The division’s quarterly sales were $5.9 billion, up 0.6{2bcf6c72702b5c79c6d60e2b201b92505312452d06f0e1ed088ab13b8bc14c0a} year over year, including an adverse currency impact of 4.8{2bcf6c72702b5c79c6d60e2b201b92505312452d06f0e1ed088ab13b8bc14c0a}. Sales were up 5.3{2bcf6c72702b5c79c6d60e2b201b92505312452d06f0e1ed088ab13b8bc14c0a} at CER on growth in Germany and the U.K.


Gross profit in the reported quarter fell 13.6{2bcf6c72702b5c79c6d60e2b201b92505312452d06f0e1ed088ab13b8bc14c0a} year over year to $6.44 billion. Gross margin contracted 296 basis points (bps) to 18.6{2bcf6c72702b5c79c6d60e2b201b92505312452d06f0e1ed088ab13b8bc14c0a}. Gross margin was adversely impacted due to shift from higher margin discretionary categories to lower margin categories and by higher supply chain costs.

Selling, general and administrative (SG&A) expenses were up 32.6{2bcf6c72702b5c79c6d60e2b201b92505312452d06f0e1ed088ab13b8bc14c0a} year over year to $8.27 billion due to higher employee costs, and social distancing and cleaning expenses.

Operating loss in the quarter was $1.83 billion against operating income of $1.22 billion in the fiscal second quarter.

The fiscal third-quarter reported and adjusted figures include estimated operational impacts of 61-65 cents per share due to COVID-19.

Financial Condition

Walgreens Boots exited the fiscal third quarter with cash and cash equivalents of $768 million compared with the $792 million recorded at the end of the fiscal second quarter. Long-term debt was $12.11 billion at the end of the reported quarter, up from $10.63 last quarter.

Year to date, net cash provided by operating activities was $3.39 billion, up from the year-ago period’s $3.22 billion.

The company has raised its quarterly dividend by 2.2{2bcf6c72702b5c79c6d60e2b201b92505312452d06f0e1ed088ab13b8bc14c0a} to an annual rate of $1.87 per share and suspended activity under its share repurchase program.

Fiscal 2020 Guidance Issued

Walgreens Boots estimates earnings per share in fiscal 2020 in the range of $4.65-$4.75, considering estimated COVID-19 impacts of $1.03-$1.14 per share.

The company expects the adverse impacts of COVID-19 to continue in the fourth quarter. In the U.K., retail conditions are expected to remain very depressed despite the gradual easing of restrictions.

However, more robust sales growth is expected in the Retail Pharmacy USA division in spite of expectations of continued compression of retail margins in comparison to fiscal 2019. The guidance is based on sales trends witnessed by the company in June and does not consider potential changes to those trends.

Meanwhile, the Zacks Consensus Estimate for fiscal 2020 adjusted earnings per share is currently pegged at $5.36.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -25.08{2bcf6c72702b5c79c6d60e2b201b92505312452d06f0e1ed088ab13b8bc14c0a} due to these changes.

VGM Scores

At this time, Walgreens has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren’t focused on one strategy, this score is the one you should be interested in.


Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It’s no surprise Walgreens has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

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