Walgreens Boots Alliance (US:WBA) was among the first wave of companies kicking off US earnings season, laying bare the impact of a full three months of the Covid-19 pandemic. But if its third-quarter results are any indicator of what is to come, investors on both sides of the Atlantic might find themselves recalibrating their expectations.
The global retail and pharmacy group kept revenue flat at $34.6bn (£27.7bn) in the three months to 31 May, but the pandemic crushed profitability – it swung to a $1.7bn net loss, compared to a $1bn net profit a year earlier. This came as it booked a $2bn non-cash impairment on its UK business – which comprises Boots UK and Boots Opticians – reflecting deteriorating business conditions and the expectation they will remain “very depressed” throughout the summer.
The overall gross margin was squeezed by a shift in the retail sales mix from higher margin discretionary products to lower margin essential goods. Meanwhile, operating costs rose by a third to over $8bn as Walgreens implemented social distancing and hygiene protocols. The group is now aiming to make annual savings of more than $2bn by the end of 2022, up from its previous $1.8bn target.