Walgreens’ earnings top expectations while store closures, layoffs weigh on profitability

Walgreens Boots Alliance‘s fiscal fourth-quarter profit slid 55% as the company spent more to shutter unprofitable locations, lay off employees and scaled back its tobacco sales.

Still, the drop in its earnings per share wasn’t as bad as expected after adjusting for one-time expenses and other issues. Revenue also topped Wall Street estimates.

Here’s what the company reported compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:

• Earnings per share: $1.43 adjusted, vs. $1.41 expected
• Revenue: $33.95 billion vs. $33.89 billion expected

Walgreens’ net income slid 55% to $677 million, or 75 cents per share, during its fiscal fourth quarter, down from $1.51 billion, or $1.55 per share a year earlier. Walgreens attributed the drop in profit to expenses associated with its cost-cutting program.

Excluding those expenses, currency exchange rates and other items, Walgreens earned $1.43 per share, above the $1.41 analysts surveyed by Refinitiv expected.

Walgreens now plans to cut more than $1.8 billion by fiscal year 2022, up from the previously announced $1.5 billion. The company already said it will close 200 Walgreens stores in the U.S. and 200 Boots stores in the U.K. The company also laid off an undisclosed number of corporate employees late last week.

“This program is truly about saving to invest for growth,” Walgreens CEO Stefano Pessina said on a call with analysts Monday following the earnings release.

For fiscal year 2020, Walgreens forecasts adjusted earnings to be roughly flat after adjusting for fluctuations in currency exchange rates.

In the fiscal fourth quarter, comparable sales in Walgreens’ U.S. retail pharmacy business increased 2.1% to $26 billion. Pharmacy sales drove the bulk of the increase. The company attributed the 4.2% sales increase to higher drug prices and dispensing more medications.

Comparable store sales of nonpharmacy products declined 1.2%. The company attributed the decline “entirely” to its de-emphasis on tobacco products. Walgreens raised the tobacco buying age to 21 in the spring after the FDA called the drugstore chain out for allegedly selling to minors. The company earlier this month announced it would stop selling e-cigarettes amid uncertainty over the products’ role in an outbreak of a deadly vaping-related lung disease.

Rival CVS stopped selling tobacco in 2014. Walgreens has stopped short of removing cigarettes and other tobacco products altogether, instead making them less prominent in its stores.

Shares of the company rose 0.5% in premarket trading.

Walgreens shares have fallen nearly 19% this year as the drugstore chain struggles to convince investors it has a plan to compete with old rivals like CVS and new ones like Amazon.

Walgreens recently announced a partnership with Alphabet‘s Wing to test using drones to deliver nonprescription items like groceries and over-the-counter medicines. That’s in addition to the more than one dozen partnerships Walgreens has already made to bring new services to its drugstores, such as dental and doctors offices.

Following the earnings release, Walgreens announced a partnership with weight-loss company Jenny Craig to open 100 Jenny Craig locations inside Walgreens stores in January.

Some analysts are skeptical the partnerships will help Walgreens much. Chief Financial Officer James Kehoe on the earnings call Monday said Walgreens is “not counting on significant flows of income” next year from the pilot programs Walgreens is running.

“It depends on the success,” he said. “Any one of them can become significant upside, we just need to see how the pilots play out over the next 12 months.”

Read the full earnings release here.