Walgreens Boot Alliance (The WBA) shares fell 20% Thursday morning on news that the company cut its earnings forecast, the second time it has adjusted its forecast downward this year.
Walgreens now estimates earnings per share between $2.80 and $2.95, down from last quarter’s forecast of $3.20 to $3.35 – when it lowered its forecast on the high end.
Investors are watching the company closely as CEO Tim Wentworth executes a new strategy for the company. He is focused on what he sees as the revitalization of pharmacies and the withdrawal of health services through VillageMD – of which Walgreens is no longer a major stakeholder.
Amid scaling back the company’s unprofitable operations, including announcing additional store closures, Walgreens is also battling a problem other small pharmacies face: prescription drug pricing pressures.
“We are at the point where the current pharmaceutical model is unsustainable and the challenges of our operating environment require us to approach the market differently. We are in active discussions…to align incentives and ensure we are paid fairly ” Wentworth said. during an earnings call Thursday.
Company officials expressed concern Pharmacy Benefit Managers (PBM) and their role in setting prescription drug prices, which has reduced the profit margins of many drugs. Brand name medications, like Eli Lilly’s popular diabetes and weight loss medications (love) — Mounjaro and Zepbound — and Novo Nordisk (NGO) — Ozempic and Wegovy — generate lower profits for pharmacies. Generics, although less expensive, have higher profit margins. But the supply of generics has been down amid persistent shortages.
The net effect is a reduction in company profits from prescriptions.
Stores and markdowns
The company noted that 100% of its profits come from 75% of its stores, although Walgreens has not yet identified how many of those 25% will close.
Walgreens has also faced shrinkage – a problem affecting the retail world as a whole – amid inflation that is reducing customers’ discretionary spending. This forces the company to rethink its products. As a result, stores have reduced their offerings, turning to preferred partner brands as well as Walgreens’ in-house brand.
Company officials said on Thursday’s call that the upcoming strategy will take into account how the company should channel its resources. maintain clinical trialsencouraging store managers, creation of a specialized pharmacy – in a way that does not “hijack” shareholder value and helps increase profits.
Anjalee Khemlani is the senior healthcare reporter at Yahoo Finance, covering all things pharmaceutical, insurance, healthcare, digital health, PBMs, and healthcare politics and policy. Follow Anjalee on all social media platforms @AnjKhem.
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