Walgreens cuts profit outlook on weakening Covid vaccine demand, consumer spending

Walgreens Boots Alliance (WBA) stock sank on Tuesday as the company warned it expects profits to be lower than initially anticipated amid dwindling demand for Covid-19 vaccines and a weakening consumer spending environment.

“We saw lower-than-expected COVID-related demand,” Walgreens CEO Rosalind Brewer said on the company’s third quarter earnings call on Tuesday. “We had called out COVID as a wildcard heading into the quarter and have unfortunately seen less patient willingness to vaccinate.”

Walgreens administered 800,000 Covid-19 vaccines in the most recent quarter, which ended on May 31. That represents a 83% decline from the same period last year.

Citing declining Covid-19 related revenues and a “more cautious macroeconomic forward view,” Walgreens cut its full-year adjusted earnings per share guidance from a range of $4.45-$4.65 to a range of $4.00-$4.05.

Shares of Walgreens slumped nearly 10% on the news.

For the third quarter, Walgreens posted revenue of $35.42 billion, slightly above analyst estimates of $34.21 billion. The company’s adjusted earnings per share of $1.00 was lower than the $1.06 the Street had been expecting. Walgreen’s gross margins came in at 18.8% for the quarter below the Street consensus for 20.6%, per Evercore ISI.

“Walgreens had a tough FY3Q,” Evercore ISI analyst Elizabeth Anderson wrote in a note on Tuesday. “Sales beat in US Retail Pharmacy and International, with Health coming in below. The more significant trouble appeared starting with gross profit, which fell 150 bps YoY, driven by a similar step down in US Retail Pharmacy (less COVID contribution).”

A ‘more cautious’ consumer

While less COVID-19 related demand than expected impacted Walgreens, the company also attributed its troubles to the overall macro economy. Brewer described the Walgreens consumer as “more cautious and value-driven.”

“Our customer is feeling the strain of higher inflation and interest rates, lower [ SNAP ] benefits and tax refunds and an uncertain economic outlook,” Brewer said. “They are pulling back on discretionary and seasonal spend and responding strongly to promotional activity.”

FILE - This June 25, 2019, file photo shows a sign outside a Walgreens Pharmacy in Pittsburgh. Walgreens slashed its earnings forecast for the year, Tuesday, June 27, 2023, and raised a cost-cutting goal after missing analyst profit expectations in its fiscal third quarter. (AP Photo/Gene J. Puskar, File)

FILE – This June 25, 2019, file photo shows a sign outside a Walgreens Pharmacy in Pittsburgh. Walgreens slashed its earnings forecast for the year, Tuesday, June 27, 2023, and raised a cost-cutting goal after missing analyst profit expectations in its fiscal third quarter. (AP Photo/Gene J. Puskar, File)

Consumer spending has been in focus since the start of first quarter earnings season when Amazon warned of a ‘cautious spending.’ Corporate results have been mixed, though.

BJ’s (BJ) told investors comparable sales were tracking below comps in the current quarter. Target warned of a consumer discretionary slowdown. But Walmart (WMT) said it’s business is healthy as it benefits from some consumers trading down.

Broadly, retail sales have largely showed steady spending, and economists are increasingly pushing out their forecast for a recession in 2023.

Investors will expect another look at consumer spending on Thursday when fellow retail pharmacy Rite Aid (RAD) is expected to report before the bell. Retail stalwart Nike (NKE) is also expected to report earnings after the bell on Thursday.

Josh Schafer is a reporter for Yahoo Finance. Follow him on Twitter @_JoshSchafer

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