- Q1 earnings beat estimates
- But quarterly dividend nearly halved
- Boots IPO a possibility
Shares in Walgreens Boots Alliance (WBA:NYSE) slumped 5% to $24.3 on Wall Street despite the retail pharmacy giant delivering better than expected first quarter sales and adjusted earnings.
The catalyst for selling was a first dividend cut (4 January) in almost five decades from the owner of US drugstore chain Walgreens and UK chemist and 2024 IPO (initial public offering) candidate Boots.
Walgreens needs to conserve cash amid subdued consumer spending and cut-throat competition and redirect investment towards stimulating growth in its core business.
DIVIDEND SLASHED TO SAVE CASH
Illinois-headquartered Walgreens almost halved its first quarter payout, slashing the dividend by 48% to 25 cents a share, in order to ‘strengthen its long-term balance sheet and cash position’ according to new CEO Tim Wentworth, the seasoned healthcare industry player seeking to turn around Walgreens’ fortunes.
This drastic action came as a shock to many investors because Walgreens had previously increased its dividend for 47 years on the spin.
Yet Wentworth insisted the move will increase the company’s cash flow and free up capital to invest in ‘sustainable growth initiatives in our pharmacy and healthcare businesses, which we believe will ultimately improve shareholder value’.
Walgreens generated sales of $36.7 billion for the first quarter to 30 November 2023, ahead of the $34.9 billion consensus estimate.
Adjusted earnings per share of 66 cents was down more than 40% year-on-year in a difficult retail market, yet the bottom line haul topped the 61 cents analysts were calling for thanks to drug price hikes and cost-cutting initiatives.
The $21 billion cap also reiterated its full year 2024 adjusted earnings guidance of $3.20 to $3.50 per share.
Back in October, Walgreens missed earnings estimates for two consecutive quarters in the first time in almost a decade amid headwinds from increased online competition, weakening demand for Covid-related products and with a US consumer feeling the pinch from inflation.
IS BOOTS ABOUT TO IPO?
Wentworth said Walgreens Boots Alliance, seeking to morph from a major drug store chain to a large healthcare firm, is ‘evaluating all strategic options to drive sustainable long-term shareholder value’.
His comment follows reports that Walgreens is reviving plans to sell Boots just two years after abandoning talks to sell the 175-year-old high street chemist to private equity, with options rumoured to include a £7 billion listing on the London Stock Exchange.
Boots used to be a London-listed stock until it became the first FTSE 100 constituent to be taken over by a private equity firm back in 2007. Five years later Walgreens bought a 45% stake in the group and then bought the rest in 2014.
Returning Boots to the UK stock market would make sense given the geographic focus of the business and would also give the UK market a boost as it has been a long time since we’ve seen a household retail name of this scale float on the London Stock Exchange.
Boots is in rather rude health and continues to take market share, having delivered a 9.8% uplift in UK like-for-like retail sales in the first quarter to November 2023.
