Walgreens begins 2020 much as it ended 2019, on a sour note

Walgreens is trying a number of different partnerships to draw more people into its stores. It is adding health care services and testing primary care clinics in some markets too.

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A man walks past a Walgreens pharmacy in downtown Cincinnati.

First-quarter net income tumbled about 25% as Walgreens filled fewer prescriptions than expected and continued to work through a cost-cutting program.

AP file photo

Walgreens is kicking off its year much as it ended its last, with a big earnings plunge. 

First-quarter net income tumbled about 25% as the drugstore chain filled fewer prescriptions than expected and continued to work through a cost-cutting program geared to produce billions in future savings.

Walgreens executives said Wednesday the company was hurt, in part, by a difficult market in the United Kingdom, but it also generated more cash than expected, and that cost-cutting may exceed the company’s goal of $1.8 billion in annual savings by 2022.

Future savings were overshadowed by the current environment of sliding profits, however. Shares of Walgreens, a Dow component, slid more than 6%. 

Deerfield-based Walgreens Boots Alliance Inc. runs more than 18,750 stores, including nearly 9,300 in the United States.

The company and its competitors have been hurt by challenges like tighter prescription reimbursement from insurers and other payers and growing competition from online options like Amazon.com. That has eaten into sales at the front end of their stores, or the areas outside the pharmacy.

Walgreens is trying a number of different partnerships to draw more people into its stores. It is adding health care services and testing primary care clinics in some markets.

The company also is partnering with the grocer Kroger Co. to improve food selection in other stores. Those companies also formed a group purchasing organization to save money.

The potential growth from these partnerships will take years to develop, believes Edward Jones analyst John Boylan.

”We anticipate that profitability and sales growth may be hard to come by for the foreseeable future,” Boylan wrote in a research note.

Executive Vice Chairman and CEO Stefano Pessina told industry analysts Wednesday that the company has a medium to long-term improvement strategy instead of focusing mainly on bumping up the next quarter’s results.

”I hope that in the end, we will be right,” he said.

Walgreens earned $845 million in the quarter that ended Nov. 30. That’s down from $1.12 billion in the previous year’s quarter. Revenue grew less than 2% to $34.34 billion.

Earnings adjusted for one-time items totaled $1.37 per share.

Analysts expected, on average, earnings of $1.41 per share on $34.58 billion in revenue, according to FactSet.

Walgreens also reaffirmed on Wednesday a forecast it made last fall for roughly flat earnings in fiscal 2020 compared to 2019, when it posted adjusted earnings of $5.99 per share.

FactSet says analysts expect, on average, adjusted earnings of $5.93 per share. 

The company’s stock fell 14% last year while the Dow advanced 24%.

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