Walgreens tops quarterly profit estimates as Sycamore deal nears completion

This June 25, 2019, file photo shows the sign outside a Walgreens Pharmacy in Pittsburgh. (AP Photo/Gene J. Puskar, File)

Walgreens Boots Alliance, which is being taken private by Sycamore Partners, beat analysts’ estimates for third-quarter profit on Thursday, helped by cost-cutting measures such as store closures.

The strong earnings underscore CEO Tim Wentworth’s efforts to turn around the company through measures such as the removal of multiple mid-level executives, a US$1 billion cost-cutting exercise and plans to close thousands of underperforming stores.

Shares of Walgreens were up nearly one per cent.

The company in March agreed to be taken private by Sycamore Partners for US$10 billion, a fraction of the US$100 billion the U.S. pharmacy chain was worth a decade ago. The deal is expected to close by the end of the year.

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“I think what Walgreens has been seeking to do is redefine how it is meaningful to its audiences,” Dave Mayer, senior partner at brand consultancy firm Lippincott said, adding that going private would enable “a longer-term turnaround that may require some major investment in the short term.”

Walgreens’ focus on its pharmacy operations, when rivals diversified into insurance and pharmacy benefit management, has weighed on its fortunes as the industry has struggled with persistently low drug reimbursement rates.

Inflation-wary consumers have also been shifting to cheaper alternatives from Amazon and Walmart for their prescriptions and toiletries, while Walgreens’ bet on doctors’ clinics through its unit VillageMD also did not pay off.

While the management has exceeded market expectations with the cost control efforts, “ultimately you’ve got to find a new source of growth and I don’t think that’s been nailed yet,” Mayer said.

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Sales at its U.S. retail pharmacy unit rose nearly eight per cent to US$30.71 billion in the quarter, beating analysts’ estimates of US$29.01 billion, according to data compiled by LSEG. Same-store sales at the unit increased 10.3 per cent in the quarter.

On an adjusted basis, the company earned 38 cents per share for the quarter, beating estimates of 34 cents per share.

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Reporting by Padmanabhan Ananthan and Mariam Sunny in Bengaluru; Editing by Sriraj Kalluvila and Leroy Leo