Walgreens Boots Alliance: A Turnaround Story Worth Watching in 2025
After suffering a staggering 60% decline in its stock value throughout 2024, Walgreens Boots Alliance (NASDAQ: WBA) is showing signs of life in 2025. Its recent fiscal Q1 2025 results, which ended in November 2024, reportedly exceeded analysts’ expectations, leading to a substantial uptick in stock price. But is it too late to invest in Walgreens, or are there still opportunities to benefit from this turnaround?
Key Highlights from Walgreens’ Quarterly Report
Despite a downturn in profits, Walgreens managed to post a 7.5% year-over-year increase in revenue, reaching $39.5 billion. Adjusted earnings per share (EPS) fell 29% to $0.51, but this figure exceeded the analyst consensus of $0.37 on revenue projections of $37.4 billion. This discrepancy indicates that, while the company is facing challenges, its core operations are beginning to stabilize.
Breaking down performance by segments, we see:
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U.S. Retail Pharmacy: Sales were up 6.6%, with same-store sales increasing by 8.5%. Moreover, comparable pharmacy sales rose by 12.7%, supported by a 2.3% increase in prescription volumes. However, comparable retail sales faced a decline of 4.6%, largely due to a lackluster cold and flu season and ongoing struggles with discretionary product sales.
- Pharmacy Operations: Operating income from the U.S. pharmacy segment saw a significant 36.4% decline to $441 million, affected by pharmacy reimbursement pressures. This has been a persistent challenge, with gross margins softening from 18.8% to 17%.
In an effort to improve profitability, Walgreens has initiated a store closure strategy, closing 67 locations in the recent quarter alone, with plans to shutter approximately 450 stores by the end of 2025. This move is intended to bolster its profitability in the long run, albeit with immediate impacts on retail sales.
Encouraging Trends Internationally
International sales also saw a respectable growth of 6.5% year-over-year, with Boots UK reporting a 4.6% increase overall. Notably, Boots pharmacy same-store sales surged by 10.9%, demonstrating robust demand outside of the U.S. Adjusted operating income for the international segment grew by a commendable 16.1% to $168 million.
Walgreens is actively working to innovate in its healthcare segment, where revenue climbed 12% to $2.17 billion, driven by partnerships with VillageMD, Shields, and CareCentrix. This segment showcases potential for growth as it expands its clinic and specialty pharmacy services.
Strategic Initiatives for Future Growth
Walgreens is not only shutting down less profitable locations but is also exploring the sale of VillageMD, with plans to evaluate its interest in the urgent care subsidiary, Summit/CityMD. The company ended the latest quarter with a debt load of $8.1 billion against $1.2 billion in cash, indicating a need for prudent financial management moving forward.
Valuation Perspective: Is It Time to Buy?
From a valuation standpoint, Walgreens appears undervalued, trading at a forward price-to-earnings ratio of 7.7 and an enterprise value-to-EBITDA multiple of 5. These metrics suggest that the stock may present a buying opportunity, especially for investors willing to adopt a speculative stance.
However, potential investors should remain cautious due to competitive pressures from retail giants like Walmart and Amazon, which are moving aggressively in pharmacy delivery solutions, particularly as Walgreens plans to close more stores.
Conclusion: Navigating the Turnaround Journey
While Walgreens remains in the early stages of its turnaround strategy, the promising revenue growth in its pharmacy business and effective management of international segments show positive progress. The impact of store closures could lead to stronger same-store sales and better long-term profitability, provided that reimbursement pressures alleviate as anticipated.
In the current environment, Walgreens is a speculative but potentially rewarding investment. At Extreme Investor Network, we advise investors to closely monitor these developments as they unfold. If you’re wary of missing out on future opportunities, consider subscribing to our stock recommendation service, where our team of experts consistently identifies stocks poised for significant gains.
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