Walgreens Barely Escapes Selling it’s Soul to Private Equity… And Jumps 15%

Once paraded as a $100 billion pharmacy monopoly in 2015, Walgreens has spent the last few years living through the corporate equivalent of a midlife crisis. You know, the kind where you consider selling your soul to private equity (Sycamore Partners, was it?) just to stay alive. Hit the fast forward button to present day, and the pharmacy chain’s market value had shriveled to an anorexic $7.5 billion by late 2024… a 92.5% freefall that would make even ex-Enron employees grit their teeth. But hold the Nyquil… things might be looking up.

Walgreens stock is up 15% this morning, on the back of an earnings report that somehow managed to clear Wall Street’s already rock-bottom expectations. The drugstore chain recorded adjusted earnings of 51 cents per share, obliterating the forecasted 37 cents, and pulled in $39.46 billion in revenue for its fiscal first quarter, a 7.5% increase from last year. CEO Tim Wentworth even managed to crack a smile, stating, “Our turnaround will take time, but our early progress reinforces our belief in a sustainable, retail pharmacy-led operating model.” In other words: “Please stop shorting our stock.”

So, what sparked this sudden optimism? For starters, Walgreens is cutting costs like it’s being consulted by Dave Ramsey. The company plans to close 1,200 underperforming stores over the next three years, including 500 by the end of this fiscal year. It's part of a multi-year plan to stabilize its struggling retail pharmacy division, which brought in $30.87 billion this quarter, up 6.6% from the same period last year. Sure, store closures aren’t exactly sexy, but they’re helping Walgreens trim the fat. And with pharmacy sales up 10.4%, thanks to inflation in brand-name medications (thanks, Big Pharma), the company is banking on fewer locations doing more sales.

Listen, Walgreens had a rough 2024 (and that’s being nice). The company was the S&P 500’s worst-performing stock last year, shedding over 60% of its value. It faced pharmacy reimbursement pressure, softer consumer spending, and challenges from its ambitious push into primary care… all while its competitors ate its lunch. Yet, there are signs of life. The health-care segment saw a 12% sales boost, and its international unit, led by U.K.-based Boots, posted a 4.5% revenue increase. Turns out, Walgreens might be more than just overpriced batteries and last-minute Valentine’s cards (but not much more).

Unfortunately, even with the earnings beat. Walgreens is still operating at a loss (yes, that’s how low of expectations analysts had for the big W). The company posted a net loss of $265 million this quarter, worse than last year’s $67 million deficit. Sure, adjusted earnings made things look better on paper (or as analysts call it, “creative math”), but the company still has a mountain to climb. So, is Walgreens back? Not really. But after losing nearly 70% of its value last year, you can’t complain when you get some positive news.

If you’re a fan of David Dreman’s strategy of buying beaten-down stocks (a.k.a. “bottom fishing”), this might be your moment. Walgreens isn’t out of the woods, but if you squint hard enough, you might see the tiniest spark of recovery. Or it might just be a turd on fire flickering in the distance. Proceed with caution.

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Stock.News does not have positions in companies mentioned.