Walgreens (WBA) Q4 2024 Earnings

Walgreens reported fiscal fourth-quarter revenue and adjusted profit on Tuesday that beat Wall Street expectations as the company cuts costs to emerge from the difficult situation.

The retail drugstore chain also said it plans to close about 1,200 stores over the next three years, including 500 in fiscal 2025 alone. The company said these closures would have an “immediate positive impact” on its adjusted earnings and free cash flow.

Walgreens has around 8,700 locations in the USA, a quarter of which are unprofitable.

These closures will give Walgreens a “healthier store base” and “allow us to respond to changes in consumer behavior and purchasing preferences,” the company's CEO Tim Wentworth said during an earnings call on Tuesday. He added that Walgreens intends to keep the majority of workers affected by the closures employed, although it is unclear how many employees could lose their jobs.

The company's shares rose about 10% in premarket trading.

The results cap a difficult 2024 fiscal year for Walgreens, which has struggled with pharmacy reimbursement pressures, weaker consumer spending and challenges related to its push into primary care, among other issues. The company said Tuesday that it exceeded its goal of $1 billion in cost savings in fiscal 2024. These included closing underperforming stores, laying off employees and using artificial intelligence to make the supply chain more efficient.

Most of the benefits of cost reductions were seen in the company's U.S. retail pharmacy segment, Walgreens CFO Manmohan Mahajan said during the call.

In June, Walgreens said it planned to close a “significant” number of its underperforming stores by 2027. Tuesday's announcement appears to be the company's first accurate estimate of how many locations it will close.

Here's what Walgreens reported for the three-month period ended Aug. 31, compared to Wall Street expectations based on an LSEG analyst survey:

• Earnings per share: 39 cents adjusted versus 36 cents expected
• Revenue: $37.55 billion versus expected $35.76 billion

Walgreens reported revenue of $37.55 billion in the quarter, up 6% from the same period last year.

The company reported a net loss of $3 billion, or $3.48 per share, for its fiscal fourth quarter. This reflects a so-called valuation allowance intended to reduce the company's deferred tax assets, primarily related to opioid settlements.

That compares with a net loss of $180 million, or 21 cents per share, in the year-ago period.

Excluding certain items, adjusted earnings for the quarter were 39 cents per share.

Fourth-quarter and full-year results “reflect our disciplined execution of cost management, working capital initiatives and reductions in capital expenditures,” Wentworth, who took the role nearly a year ago, said in a news release.

The company's forecast for fiscal year 2025 was in line with analysts' expectations. Walgreens expects growth in its U.S. healthcare and international segments, offset by a decline in its retail pharmacy segment.

The company is in a “multi-year process of realigning our relationship” with pharmacy benefit managers, who negotiate drug discounts on behalf of health insurers and reimburse pharmacies for prescription drugs, Wentworth said during the call. Walgreens hopes this will help improve margins in its pharmacy business.

Walgreens expects adjusted earnings per share of $1.40 to $1.80 for the coming fiscal year. According to LSEG, analysts forecast adjusted earnings of $1.75 per share.

The company also expects revenue of $147 billion to $151 billion for the year. Wall Street analysts estimate sales at $147.3 billion.

Walgreens reported growth across its three business units in its fiscal fourth quarter.

Revenue from the company's U.S. healthcare division jumped to $2.11 billion, up 7.1% from the same period last year.

Analysts had expected sales of $2.10 billion, according to StreetAccount estimates.

This reflects, in part, the growth of primary care provider VillageMD and specialty pharmacy company Shields Health Solutions. Shields' revenue rose 27.8% in the period, which the company attributed to growth in existing partnerships.

Specialty pharmacies are designed to supply medications with unique handling, storage and distribution requirements, often for patients with complex diseases such as cancer and rheumatoid arthritis.

Notably, Walgreens posted a large net loss in its fiscal second quarter as the company took a large charge of nearly $6 billion related to the decline in the value of its investment in VillageMD. In August, the company said in a securities filing that it was considering selling the provider.

Walgreens' U.S. pharmacy segment generated revenue of $29.47 billion in the fiscal fourth quarter, up 6.5% from the same period last year. Analysts had expected sales of $28.09 billion, according to StreetAccount estimates.

This segment operates the Company's drugstores, which sell prescription and over-the-counter medications, as well as health and wellness, beauty, personal care and grocery products.

Walgreens said pharmacy sales increased 9.6% and comparable pharmacy sales increased 11.7% in the quarter compared to the same period last year, due in part to price inflation for brand-name drugs.

Total prescriptions filled in the quarter, including vaccines, were 302 million, up 1.7% from the same period last year. In particular, declining reimbursement rates for prescription drugs reduced pharmacies' margins, the company said.

Retail sales fell 3.5% compared to the same quarter last year, and comparable retail sales fell 1.7%. The company cited, among other things, a “challenging” retail environment.

Walgreens' international unit, which operates more than 3,000 retail stores abroad, reported sales of $5.97 billion in its fiscal fourth quarter. This is an increase of 3.2% compared to the same period last year.

Analysts expected revenue of $5.81 billion for the period, according to StreetAccount.

The company said sales at its UK-based drugstore chain Boots rose 2.3%.