It has been a really troublesome 12 months for Walgreens Boots Alliance (NASDAQ: WBA), however the inventory was climbing larger following its fiscal fourth-quarter earnings report and the small print of its retailer closure plan. Nonetheless, the inventory remains to be down about 60% 12 months up to now.
Let us take a look at Walgreens’ most up-to-date quarterly report, its retailer closure plan, and whether or not or not it is time to purchase the inventory.
Earnings and retailer closures plan
The problems which have been hampering Walgreens did not go away in fiscal This autumn, ended Aug. 31, however the pharmacy operator was nonetheless capable of high expectations.
For the quarter, Walgreens’ income climbed 6% 12 months over 12 months to $37.55 billion. Nevertheless, adjusted earnings per share (EPS) plunged 40% to $0.39, as its margins proceed to be squeezed by reimbursement pressures. Nevertheless, the outcomes topped the analyst consensus, which was calling for adjusted EPS of $0.36 on income of $35.76 billion.
U.S. retail pharmacy gross sales jumped 6.5% 12 months over 12 months, with same-store sales hovering 8.3%. Comparable pharmacy gross sales jumped 11.7%, whereas comparable retail gross sales had been down 1.7%. Adjusted working revenue sank 60.4% 12 months over 12 months to $220 million, harm by pharmacy reimbursement pressures and a difficult retail surroundings.
Worldwide gross sales rose 3.7% 12 months over 12 months, with Boots UK gross sales up 2.3%. Boots retail same-store gross sales had been up 6.2%, whereas pharmacy same-store gross sales climbed 10%. Worldwide adjusted working revenue dropped 10.6% 12 months over 12 months to $231 million, largely attributable to an absence of actual property positive aspects within the quarter.
Income from its U.S. healthcare phase rose 7.2% 12 months over 12 months to $2.1 billion, with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $65 million, an enchancment from damaging $29 million a 12 months in the past. VillageMD income grew 7% 12 months over 12 months, whereas Shields income soared 24%.
Gross margin fell to 16.7% from 18.6% a 12 months in the past. Gross margin in its U.S. retail pharmacy enterprise dropped to 16% from 18.4%. Continued drug reimbursement strain and its impression on gross margin has been the largest problem going through Walgreens.
Walgreens generated $1.1 billion in free money movement within the quarter and $23 million for fiscal 2024. It ended its fiscal 12 months with $9.5 billion in debt and $3.1 million in money and marketable securities.
In response to the gross margin strain, the corporate has been chopping prices and mentioned it surpassed its purpose of lowering bills by $1 billion. Whereas it’s persevering with to debate various reimbursement fashions with pharmacy profit managers (PBMs), the corporate will within the meantime look to shutter 1,200 of its 8,700 shops that it mentioned are unprofitable. This contains closing 500 shops in fiscal 2025.
The corporate forecast fiscal full-year adjusted EPS of $1.40 to $1.80 on gross sales of $147 billion to $151 billion. Analysts had been anticipating adjusted EPS of $1.72 on income of $147.3 billion.
Is it time to purchase Walgreens inventory?
Closing shops must be a pleasant addition by subtraction for Walgreens. It would assist the corporate in two important methods. The primary is that closing money-losing shops will instantly assist its earnings. Second, as soon as a retailer is closed, it ought to assist enhance the site visitors of close by shops, which can assist its same-store gross sales and enhance income as properly.
As such, Walgreens ought to turn into a smaller firm by income, however in the end extra worthwhile. Exiting its majority stake in VillageMD would even be one other potential addition by subtraction, though the enterprise seems to have stabilized. Nevertheless, the corporate plans to attempt to promote the enterprise with a view to pay down debt.
Reimbursement strain stays the largest problem for Walgreens and it’ll proceed to attempt to transfer PBMs to various fashions the place it is going to receives a commission for the worth it provides. Administration has mentioned it sees some progress in working with PBMs to regulate reimbursement price mechanisms and that 80% of its contracts are actually locked in for subsequent 12 months.
The corporate would additionally profit if the Federal Commerce Fee (FTC) wins its current lawsuit towards the three massive PBMs, which might cease the follow of excluding sure medicine from PBM formularies and improve transparency, which might assist pharmacy operators.
Even with its current positive aspects, the inventory solely trades at a ahead price-to-earnings (P/E) ratio of 5.5, which remains to be very cheap and properly under historic valuations.
Given the optimistic impacts the corporate ought to see from retailer closures and the inventory’s low cost valuation, Walgreens is an intriguing rebound candidate. A optimistic end result for the FTC in its lawsuit towards PBMs might solely additional bolster its turnaround potential.
As such, I don’t suppose it’s too late for buyers to purchase the inventory.
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Geoffrey Seiler has no place in any of the shares talked about. The Motley Idiot has no place in any of the shares talked about. The Motley Idiot has a disclosure policy.
Walgreens Rallies on Store Closure Plan. Is the Stock a Buy Now? was initially printed by The Motley Idiot
