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The bleeding refuses to stop for Walgreens Boots Alliance (WBA -24%), as shares trade at 25-year lows today after an earnings miss in Q3 (May) coupled with lowered FY24 (Aug) adjusted EPS guidance triggers a substantial sell-off. Shares of the retail pharmaceutical and healthcare services firm have been on a slippery slope for years, sliding by over 75% since January 2022 highs, with the stock slashed in half thus far in 2024.

The crux remains a strained end consumer, hampering the retail demand environment. WBA is not alone in dealing with such a stubborn headwind. CVS Health (CVS) has repeatedly discussed a challenging demand backdrop surrounding front-of-store sales over the past few quarters. Meanwhile, Rite Aid filed for Chapter 11 bankruptcy in October and has been shuttering hundreds of locations nationwide, leaving a void for other retail pharmacies to step in and fill.

However, WBA has no plans to open any new stores to take advantage of any holes left by Rite Aid. Instead, WBA is heading in the opposite direction, noting today that it is finalizing a significant multi-year footprint optimization program, closing roughly a quarter of its U.S. stores. The gaps across the nation regarding retail pharmacies underpin just how dismal the demand landscape is and how value-seeking behavior is nudging consumers to either consolidate their shopping trips by choosing pharmacy options from mass merchants like Walmart (WMT) or shifting toward e-commerce alternatives such as Amazon Pharmacy (AMZN).

• During Q3, WBA's U.S. Retail Pharmacy segment did deliver positive growth, expanding its top line by 2.3% yr/yr to $28.5 bln on comps of +3.5%. However, this was driven entirely by pharmacy, which enjoyed +5.7% comp growth, benefiting from higher branded drug prices and script growth.
• WBA's U.S. Healthcare segment fared much better, recording a 7.6% jump in sales yr/yr to $2.1 bln. The company's substantial investments and acquisitions, including VillageMD and Shields, led the way in Q3, posting a 7% and 24% pop in sales, respectively. Nevertheless, this segment comprises just 6% of WBA's total sales, resulting in tepid overall growth of 2.8% yr/yr to $36.4 bln.
• Meanwhile, adjusted operating income plummeted by over 36% yr/yr in constant currency, with a nearly 50% plunge in U.S. Retail Pharmacy. As a result, WBA's Q3 adjusted EPS was reduced by 37% yr/yr to $0.63.
• WBA does not anticipate the weak demand backdrop to improve anytime soon, lowering its FY24 adjusted EPS outlook to $2.80-2.95 from $3.20-3.35. Through the first month of Q4, the U.S. consumer has demonstrated the same unfavorable behavior as in Q3. However, WBA did keep its FY24 U.S. Healthcare segment adjusted EBITDA breakeven forecast intact. WBA is also continuing to review its Boots U.K. business.

WBA is on shaky ground following its Q3 performance. Shuttering 25% of its stores across the U.S. reflects a seriously problematic retail market that could take an extended period to recover. While the Walgreens brand still holds plenty of weight, providing a firm foundation for WBA to construct its turnaround from, without more favorable demand conditions, the next couple of quarters could resemble the past several quarters, keeping volatility elevated.