💊 Can Walgreens Nurse Itself Back To Good Health?
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💊 Walgreens: Post-Pandemic Blues?
Retail pharmacy chain Walgreens Boots Alliance (WBA) reported results that beat estimates. With demand for Covid products on the wane, the company is forced to explore other avenues. Adding to that is a bust e-commerce platform which led to more losses. Can it return to the pink of health? (Tweet This)
OK For Now, But What About The Future?
Pandemic-related tailwinds are fading for many companies. Walgreens is no exception. The Omicron variant had contributed to the company's robust sales performance in Q2. With Covid-19 now pretty much an afterthought, the companies that found the going good back then are currently fumbling.
Key Highlights From Q2:
Revenue: $33.76B Vs $33.4B expected
EPS: $1.59 Vs $1.40 expected
Same-store sales for the pharmacy segment in the US rose 7.3% Y-o-Y thanks to robust vaccinations. Those who came in for vaccines bought something in the store. And thus, the same-store sales in retail rose 14.7% - the biggest gain in over two decades.
Health, wellness, beauty, personal care - everything grew in Q2. However, e-commerce sales in the US rose by 38% in Q2, compared to 78% during the same period last year. Same-day pickup orders stood at 3.9M for the quarter.
The company's UK-based Boots chain saw retail same-store sales surge 22% Y-o-Y. Walgreens is evaluating a potential sale for the Boots business. Be that as it may, the expectation for the current quarter in the US wasn’t as rosy.
Walgreens President John Standley acknowledged that Covid-19 testing has slowed down since the Omicron period of January and February. On the vaccine front, the chain administered 11.8M vaccines in Q2, down from 15.6M in Q1. Overall, the company has administered 62.8M Covid-19 vaccines to date.
The company did not raise earnings guidance for the full year; instead, it stuck to the earlier projection of low-single-digit EPS growth. Although the company has begun to administer the fourth dose of the vaccine, it’s not sure how many takers there are.
A Little Too Late?
Walgreens is done looking at itself as a retail drug chain. Instead, it has set its sights on becoming a full-fledged healthcare company. Hence it's $6B investment in VillageMD for majority ownership. VillageMD expects to grow from the current 102 neighborhood clinics to 200+ clinics by year-end. In addition, Walgreens stores will now have Health Corners for customers to consult with a pharmacist.
This ramp-up will take time. As the model matures, the company hopes to benefit from higher prescription volumes and lower medical costs for customers. As pharmacists take up more responsibilities in the Health Corners, Walgreens is turning to robots to fill medical prescriptions.
Each robot can fill up to 300 prescriptions in an hour, the same number that a regular Walgreens Pharmacy, and a handful of staff members, would do in an entire day. Prescriptions for time-sensitive medication and controlled substances at local stores will continue to be filled by pharmacists.
Walgreens expects at least half of the total prescription volume from stores to be filled at automated centers by 2025. Its facility in Dallas fills 35K prescriptions daily with the help of robots, a number that will eventually grow to 100K. In addition, it has opened two other such facilities in Phoenix and Memphis. These micro-fulfillment centers will reduce the company's working capital by $1.1B by 2025.
Walgreens had invested multi-million pounds into UK-based T0day to leverage the platform’s technology for its online retail process. However, the platform, which faced allegations of corporate espionage, collapsed last week and was administered into insolvency proceedings.
That aside, Walgreens’ plans didn’t find much favor with the analysts, who promptly pointed out that CVS had opened its first MinuteClinic nearly 15 years earlier and has over 1.1K clinics across the US. In other words, Walgreens is relegated to an also-ran before it even begins! Analysts also expect 2023 to be challenging, citing rising labor costs and reimbursement pressure from insurers.
Shares of Walgreens are down 17% this year, compared to a 2.5% drop in rival CVS. When we last wrote about the company in October last year, we wondered whether Walgreens has what it takes to catch up with its rivals over time. That question may not be misplaced even now! What is the need of the hour for Walgreens? No doubt, a prescription for itself to restore good health.
WBA ended at $43.86, down 2.03%.
Company Snapshot 📈
WBA $43.86 -0.91 (2.03%)
Analyst Ratings (22 Analysts) BUY 5% HOLD 82% SELL 13%
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Today's Fun Fact
Michael Kors designed his first piece of clothing aged 5; his mother's wedding dress
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