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Walgreens shares slide despite strong sales

 

Wednesday, June 28, 2023

Today’s headlines

What’s happening: Shares of Walgreens Boots Alliance moved lower on Tuesday, after the company released results for its third quarter.

What happened: The drugstore giant reported better-than-expected sales for its third quarter.

However, Walgreens was among the worst performing stocks on the S&P 500 on Tuesday, after lowering its full-year outlook.

How were the results: The Deerfield, Illinois-based company reported single-digit growth in sales and earnings for its third quarter.

  • Sales rose 8.6% year-over-year to $35.4 billion, beating the consensus estimates of $34.25 billion..
  • Adjusted earnings grew 3.3% to $1.00 per share, missing Wall Street expectations of $1.07 per share.

Why it matters: While Walgreens witnessed a sharp decline in covid-19 testing and vaccines, soaring inflation resulted in consumers looking for discounted items, impacting the company’s overall sales.

Walgreens, which has approximately 13,000 locations across the US, Europe and Latin America, raised the target of its cost-cutting program and announced plans to shut 300 more locations in the UK and 150 in the US.

Excluding immunisations, US pharmacy comparable script volumes grew by 2.8% during the quarter, while US retail comparable sales contracted 0.2%, versus market expectations of 2.1% growth.

Same-store sales at the company’s pharmacies climbed 9.8%, topping market views of 8.8%, amid higher drug prices. Its adjusted operating income rose 0.6% on a constant currency basis to $1.0 billion in the quarter.

CEO Rosalind Brewer said during the earnings call that “lower demand for covid-related services, a more cautious and value-driven consumer, and a recently weaker respiratory season” had created margin pressure during the quarter.

Management lowered their full-year adjusted earnings forecast to $4.00-$4.05 per share, from their earlier outlook of $4.45-$4.65 per share, citing “consumer and category conditions, lower covid-19 contribution, and a more cautious macroeconomic forward view.”

How shares responded: Shares of Walgreens fell 9.3% to close at $28.64 on Tuesday, following the release of quarterly results. The stock has lost around 24% over the past six months.

What to watch: Investors will watch inflation levels and covid-related sales, both of which could continue to impact the company’s sales ahead.

The markets today

The euro will be in focus today ahead of a basket of economic reports

Context: The EUR/USD forex pair settled higher on Tuesday, following remarks from ECB officials.

Details: European Central Bank President Christine Lagarde said inflation in the Eurozone remained too high and is “set to remain so for too long.”

Eurozone’s headline inflation slowed to 6.1% in May, from 7% in the previous month, but was significantly higher than the ECB’s target of 2%.

“We have made significant progress but — faced with a more persistent inflation process — we cannot waver, and we cannot declare victory yet,” Lagarde stated.

The ECB has raised interest rates by 400 basis points since July 2022. There are speculations of a rate hike next month and another in September.

Weakness in the US dollar also lent support to the EUR/USD forex pair on Tuesday. The US dollar index, which measures the currency’s performance versus a basket of major peers, fell around 0.2% to 102.49.

The EUR/USD gained over 0.5% to 1.0961. The forex pair had surging to 1.0976 earlier in the session, its highest level since June 22.

What are expectations: Traders await the release of economic data on household credit growth, loans to non-financial corporations and money supply M3 from the Eurozone today. Bank lending to households in the Eurozone, which grew by 2.5% year-over-year to €6.87 trillion in April, is expected to rise by 2.3% in May. Analysts expect bank lending to companies in the Eurozone to surge 4.3% year-over-year in May, following a 4.6% rise a month ago.

M3 money supply in the Euro Area is expected to increase by 1.7% year-over-year in May, after a 1.9% rise in April. Markets will also watch the release of inflation data, due to be released on Friday.

Other Markets: US trading indices closed higher on Tuesday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.63%, 1.15% and 1.75%, respectively.

The news shaping the markets

Russia’s President Vladimir Putin warned of an investigation into the finances of Wagner chief Yevgeny Prigozhin’s catering firm. The news sent the safe-haven US dollar index higher this morning.


US crude stockpiles fell by 2.408 million barrels in the week ended June 23, following a decline of 1.246 million barrels in the prior week, lending support to the WTI crude oil prices.


Australia’s monthly Consumer Price Index indicator rose 5.6% in the 12 months to May, versus 6.8% growth in the year to April, which exerted pressure on the AUD/USD forex pair.


China’s industrial profits contracted by 18.8% year-over-year to 2,668.89 billion yuan during the first five months of the year, sending the CNY/USD pair lower in forex trading this morning.


US new home sales climbed 12.2% to an annualised rate of 763,000 in May. This being the strongest figure since February 2022 sent the Dow Jones index higher by over 200 points on Tuesday.

What else to watch today

Germany’s GfK consumer climate indicator, France’s consumer confidence indicator, Spain’s retail sales, Italy’s producer price inflation, inflation rate and industrial sales, US MBA mortgage applications, goods trade balance, wholesale inventories, gasoline stocks, crude oil inventories and distillate stocks, Brazil’s value of loans and net payrolls, India’s money supply M3, as well as Russia’s unemployment rate, real wages, industrial production, retail sales, corporate profits, business confidence and GDP.


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