When you’re the worst-performing stock in the S&P 500 this year, the only way to go is up.
Walgreens Boots Alliance just dropped its fourth-quarter earnings announcement, which topped estimates and included the news that the retail pharmacy giant is closing 1,200 stores by 2027—approximately 10% of its locations. 500 of them will be sunset as soon as 2025.
Shares of Walgreens jumped 15.78% today after the firm announced it beat both sales and revenue expectations amid its cost-cutting bonanza, though the news wasn’t all good.
- Adjusted earnings came in at $0.39 per share, higher than the $0.36 that analysts expected.
- Revenue rose 6% year over year to $37.55 billion, versus forecasts of $35.76 billion.
- However, Walgreens recorded a net loss of $3 billion, way up from the $180 million net loss it accrued over the same period last year.
While a mixed-bag earnings report usually doesn’t send shares flying by double digits, any good news at all makes a difference when shares are down 70% year-to-date. And the store closures—while an extreme measure—will enable the firm to further slash costs, a move Walgreens investors have been begging for.
Through layoffs, AI implementation, and shuttering underperforming stores, the company said it has been able to cut $1 billion in costs in fiscal 2024 already.
However, lawmakers raised concerns that closing Walgreens stores will leave many in a “pharmacy desert” and make necessary drugs even harder to get for underprivileged communities. The company has not indicated which stores will be closing.
What’s ailing Walgreens?
The retail giant has struggled over the past year as traditional pharmacies face higher prescription-filling costs, while competition in the drug sector from Amazon and others has cut into their customer base. Slowing consumer demand across the economy and challenges related to its foray into primary care have also hobbled the company.
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Walgreens isn’t the only one having a hard time. Earlier this month, CVS Health announced it is eliminating nearly 2,900 jobs in an effort to cut $2 billion.
Is this the beginning of a comeback? According to analysts… probably not right now.
The vast majority of analysts have a “hold” rating, and just last week, Morgan Stanley analyst Erin Wright lowered the firm’s price target for Walgreens from $9 to $7.
“While we acknowledge the inherent optionality as WBA's new management assesses all aspects of its business amidst a turnaround, there can be a delicate balance between potentially divesting non-core assets and future cash flow generation,” Wright wrote.
Walgreens CEO Tim Wentworth acknowledged in a statement that,”the turnaround will take time, but we are confident it will yield significant financial and consumer benefits over the long term.”
TLDR: While you might go to Walgreens to alleviate symptoms of illness, adding it to your portfolio could infect your finances.—LB