Walgreens Boots Alliance (WBA, Financial) is navigating through a tough retail environment, leading to a cut in its FY24 adjusted earnings forecast. This adjustment comes after a significant dividend reduction last quarter aimed at boosting profitability. Despite the initial negative reaction, investor confidence in Walgreens' recovery seems to be growing.
The Q2 performance of WBA highlighted a surprising 3.4% year-over-year increase in adjusted EPS to $1.20, surpassing analysts' expectations of a decline. Sales also saw a notable rise of 6.3% to $37.05 billion. This growth was primarily fueled by a strong showing in the U.S. Pharmacy sector, with an 8.7% comp growth, and international revenue growth of 6.6% to $6.02 billion, supported by a 5.9% increase in Boots UK retail comps.
WBA's U.S. Healthcare sector, bolstered by approximately $17.0 billion in acquisitions and investments, reported a 14% sales increase on a pro forma basis, led by VillageMD and Shields. This marks the first time the segment has achieved positive adjusted EBITDA, with expectations to reach breakeven in FY24. Despite a $12.4 billion non-cash goodwill impairment charge related to VillageMD, WBA remains optimistic about its future growth.
Future projections for WBA have been adjusted due to a persistently weak retail environment, reducing the FY24 earnings outlook to $3.20-3.35 from the previous $3.20-3.50. Other contributing factors to this revised guidance include lower sale-leaseback gains and reduced Cencora equity income.
Investors have shown a moderately positive reaction to WBA's Q2 report, the first under new CEO Tim Wentworth. This optimism is partly due to the performance of the U.S. Healthcare segment and the unchanged lower end of the FY24 EPS guidance, suggesting stability in Walgreens' financial health. However, the company's transition to a healthcare-focused entity remains challenged by economic conditions and competition from CVS Health (CVS, Financial), which has not faced the same level of integration challenges.
