Walgreens Boots Alliance (WBA) stock sank on Tuesday as the company warned that it expects earnings to be lower than initially expected amid waning demand for COVID-19 vaccines and a weak consumer spending environment.
“We saw less COVID-related demand than expected,” Walgreens CEO Rosalind Brewer said on the company’s third-quarter earnings call Tuesday. “We have described COVID as an alt character heading into the quarter and unfortunately we have seen less impatient willingness to vaccinate.”
Walgreens administered 800,000 COVID-19 vaccines in the most recent quarter, which ended May 31. This represents a decrease of 83% from the same period last year.
Citing lower revenue related to COVID and a “more cautious macroeconomic outlook,” Walgreens lowered its full-year adjusted earnings per share guidance to a range of $4.00 to $4.05 from a range of $4.45 to $4.65.
Walgreens shares fell nearly 10% on the news, closing at their lowest levels since 2010.
In the third quarter, Walgreens reported revenue of $35.42 billion, just above analyst estimates of $34.21 billion. The company’s adjusted earnings per share of $1.00 was less than the $1.06 Street had expected. Walgreen’s gross margins came in at 18.8% for the quarter, below the Street consensus of 20.6%, according to Evercore ISI.
“Walgreens has had a difficult FY3Q year,” Evercore ISI analyst Elizabeth Anderson wrote in a note Tuesday. “Sales at retail pharmacies outperformed in the US and International, with Health Reach below. The most significant issue emerged starting with gross profit, which was down 150 basis points year-over-year, driven by a similar move at retail pharmacies in the US (less contribution to COVID) .”
‘More cautious’ consumer
While lower-than-expected COVID-related demand weighed on Walgreens, the company also attributed its woes to the overall macroeconomics. Brewer called the Walgreens consumer “more cautious and value-driven.”
“Our clients are feeling the pressure of rising inflation and lower interest rates [SNAP] “The benefits and tax refunds, the uncertain economic outlook. They’re holding back on discretionary and seasonal spending and responding aggressively to promotional activity,” Brewer said.
Consumer spending has been in focus since the start of the first quarter earnings season when Amazon warned of “cautious spending”. However, the companies’ results were mixed.
BJ’s (BJ) told investors that comparable sales were tracking below comps in the current quarter. Target warned of consumer discretionary slowdown. But Walmart (WMT) said its business is healthy because it’s benefiting from some consumer declines.
Broadly speaking, retail sales have largely shown flat spending, and economists are increasingly increasing their forecasts for a recession in 2023.
Investors expect another look at consumer spending on Thursday when retail pharmacy Rite Aid (RAD) is expected to report before the bell. Nike Inc (NKE) is also expected to report earnings after the bell on Thursday.
Josh Schafer Yahoo Finance Reporter. Follow him on Twitter @employee
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