In the bustling streets of New York City, a person walks near a Walgreens pharmacy on a day in March 2023. Walgreens recently shared its financial performance for the first quarter, revealing earnings and revenue that exceeded expectations. However, the company decided to reduce its quarterly dividend by almost half, from 48 cents per share to 25 cents per share.
CEO Tim Wentworth, who assumed his role during the quarter, explained that this dividend cut aims to “strengthen [the] long-term balance sheet and cash position” of Walgreens. This move, reducing the dividend yield to 3.9%, contrasts sharply with its previous standing as the highest-paying dividend stock in the Dow Jones Industrial Average with a yield of over 7%.
Notably, this marks the first time in nearly five decades that Walgreens has chosen to cut its dividend. Despite the dividend cut, the company’s focus is on navigating challenging circumstances, as it faced a 30% drop in its stock value last year. Various factors contributed to this decline, including reduced demand for Covid-related products, lower pharmacy reimbursement rates, increased competition from online retailers, labor issues among pharmacy staff, an uncertain expansion into health care, and challenges in the broader economic environment.
However, the latest earnings report signals a positive shift, indicating a turnaround from the previous two quarters when Walgreens fell short of earnings estimates. In this first fiscal quarter, the company reported adjusted earnings per share of 66 cents, surpassing the expected 61 cents. The revenue for the quarter amounted to $36.71 billion, exceeding the anticipated $34.86 billion.
Despite these positive results, Walgreens remains cautious about the future. The company anticipates a net loss of $67 million for the first quarter, including a $278 million after-tax charge related to the forward sale of shares of drug distributor Cencora (formerly AmerisourceBergen Corp). This loss, however, is a significant improvement from the previous year’s net loss of $3.7 billion, attributed to a multi-billion dollar settlement for litigation related to the opioid crisis.
Walgreens is actively transforming its business model, investing in becoming a large health-care company rather than just a drugstore chain. The company is confident in its fiscal year 2024 adjusted earnings guidance of $3.20 to $3.50 per share, despite expecting challenges such as lower Covid-related sales, a higher tax rate, and reduced contributions from sale and leaseback activities.While the company did not clarify its revenue guidance, maintaining its focus on cost-cutting initiatives is evident. Walgreens aims to achieve over $1 billion in savings during fiscal year 2024, employing strategies such as closing unprofitable stores and utilizing AI to enhance supply-chain efficiencies. As Walgreens steers through these changes, the future remains uncertain, but the first-quarter results offer a glimmer of hope for the renowned retail pharmacy giant.
Evan Archer, a seasoned journalist with an insatiable curiosity for unraveling the complexities of global affairs, stands at the forefront of contemporary world news. Born with an innate passion for storytelling, Archer has dedicated his career to shedding light on the intricate tapestry of international events, navigating the ever-evolving landscape of geopolitical dynamics.
