By Manas Mishra and Michael Erman
(Reuters) -Walgreens Boots Alliance on Tuesday warned that lower spending by inflation-spooked consumers and a hit from a larger-than-expected drop in COVID-19 product sales would likely persist into next year, sending its shares down 9%.
The end of the COVID emergency in May led to a steep drop in COVID vaccines and testing, CVS executives said, while penny-pinched customers hunted for discounted items, shunning normal-priced consumer health products.
“Very few people are getting either rapid tests or the actual PCR nasal swab tests. That… probably has some impact on CVS and Rite Aid,” said Gabelli Funds portfolio manager Jeff Jonas.
Walgreens’ shares were at $28.64 in noon trade, hitting an over 11-year low after the company slashed its profit forecast for the year.
The forecast cut dragged shares of Rite Aid by nearly 12%, while shares of larger rival CVS Health were down 1.8%.
“Similar to other retailers, we’ve been impacted by the rapid softening of the macro environment and a more cautious and value-driven consumer,” CEO Rosalind Brewer told investors.
Brewer said higher inflation rates, lower tax refunds and other macroeconomic issues were causing consumers to pull back on discretionary spending.
“I think there’s some execution issues there, too. I still think they’re learning how to target their promotions better and maximize their loyalty card,” said Jonas.
Also weighing on shares, the pharmacy chain said its new healthcare business, through which it operates doctors’ offices, missed Walgreens’ target for sales growth due to a weak respiratory disease season.
The company said it had increased the target of an ongoing cost-cutting program to counter those pressures.
In the third quarter, Walgreens reported a 0.2% fall in same-store sales at its retail division, compared with estimates of a 2.1% rise, mainly due to lower COVID testing and sluggish demand for cough and cold medicines.
Same-store sales at its pharmacies, however, rose 9.8% and beat estimates of 8.8%, mainly due to higher drug prices.
The company now expects fiscal 2023 adjusted earnings per share of $4.00 to $4.05, from $4.45 to $4.65 previously.
(Reporting by Manas Mishra and Mariam Sunny in Bengaluru and Michael Erman in New York; Editing by Pooja Desai)
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