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COVID-19 Took Another Bite From Walgreens, But It Left Better-Than-Expected Earnings

On Thursday, Walgreens Boots Alliance, Inc. (NASDAQ: WBA) revealed its earnings report for its fourth quarter and 2020 FY that ended on August 31st, 2020. Walgreens has topped earnings forecasts and sees profit growth despite the pandemic. Although COVID-19 took another bite out of Walgreens Boots Alliance quarterly numbers, at least this time, it left behind better-than-expected earnings. Following the release, Dow member’s stock rose 5.6%, which trimmed its six-month drop to approximately 12.75%.

Q4 highlights 

Fourth-quarter sales increased 2% to $34.7 billion but net income fell nearly 45% to $373 million. The decreases in both net earnings and adjusted net earnings were primarily due to an estimated adverse COVID-19 impact of $520 million, lower U.S. pharmacy gross profit and year-on-year bonus changes. The negative impact was partially offset by Transformational Cost Management Program savings.

Its overseas business struggled again as the pandemic hampered customer traffic and prescription demand in the U.K. On a bright note, sales and prescriptions grew in the United States. The largest U.S. pharmacy chain with roughly 9,000 locations announced it is forced to close more U.S. stores than additionally planned.

A slow recovery from COVID-19

While the company anticipates a gradual reduction in COVID-19 impacts, the first-half results will continue to be negatively impacted when compared to the pre-COVID-19 first half of fiscal 2020. However, for the second half, the company anticipates strong adjusted EPS growth, as these effects subside and recovery starts taking place in Walgreen’s key markets.

Outlook

Even with the pandemic aside, Walgreens needs to evolve its business model to be able to keep up with competitors such as CVS Health Corporation (NYSE: CVS). Besides focusing on surviving the storm, it has key strategic initiatives to implement. It needs to accelerate the Boots UK turn-around. It needs to advance its omnichannel capabilities to catch the online retail wave. Its digital agenda involves the launch of myWalgreens, an enhanced customer loyalty program that will serve more than 100 million consumers. The goal is to expand convenient pickup options so customers can have their products within 30 minutes. Also, it will be leveraging its investment in VillageMD as it plans to open 500 to 700 full-service doctor offices over the next five years. The initial phase of openings is planned during fiscal 2021 to catch the telemedicine wave, the adoption of which has only accelerated with the pandemic. Moreover, it needs to continue implementing its Transformational Cost Management Program that has already brought in significant cost savings. At the end of the day, Walgreens did exceed analysts’ earnings expectations in the fourth quarter. Moreover, it expects a major comeback in fiscal 2021 as it projected “low single-digit growth in adjusted earnings per share” in its guidance. Although it estimates a challenging first half of the year, there is increased optimism for the second half.

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