Walgreens Boots (WBA) Stock Down 7% After Reporting $2B Impairment Due to COVID-19

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by Benjamin Godfrey · 3 min read
Walgreens Boots (WBA) Stock Down 7% After Reporting $2B Impairment Due to COVID-19
Photo: Walgreens Boots Alliance

The Q3 performance report from Walgreens Boots released on Thursday shows the company suffered almost $2 billion impairment due to COVID-19. WBA stock price is down.

Wall Street has recorded yet another company that took a hard hit as a result of the COVID-19 pandemic. Walgreens Boots Alliance Inc (NASDAQ: WBA) has reported a quarter profitability dip. Although the pharmaceutical retailer recorded a sales growth of $33.6 billion, with a year on year rise, Walgreens Boots stock lost $1.95 a share in Q2 2020 ended May compared with earnings of $1.13 per share in the same period in 2019.

Walgreens Boots stock has nosedived further following the COVID-19 induced poor performance. Walgreens Boots stock lost 7.76% to close at $39.01, investors do not seem to have regained their confidence in the stocks as it is recording a further dip after hours of trading on Friday losing 0.41%. Walgreens Boots is among the top losers contributing to the 361.19 points dip of the Dow Jones Industrial Average (INDEXDJX: .DJI)

Meteoric Rise of Walgreens Boots

Walgreens Boots Alliance, Inc. is an American holding company headquartered in Chicago, Illinois, that owns Walgreens, Boots, and a number of pharmaceutical manufacturing, wholesale, and distribution companies. The company was formed on December 31, 2014, after Walgreens purchased the 55% stake in the UK and Switzerland-based Alliance Boots that it did not already own. The total price of the acquisition was $4.9 billion in cash and 144.3 million common shares with a fair value of $10.7 billion.

The company is organized into three divisions: Retail Pharmacy USA (Walgreens and Duane Reade), Retail Pharmacy International (Boots and other retail operations internationally), and Pharmaceutical Wholesale incorporating Alliance Healthcare. The new holding company began trading on the NASDAQ on December 31, 2014, and has experienced remarkable growth that saw it replace General Electric Company (NYSE: GE) on the Dow Jones Industrial Index back in June 2018.

Walgreens and Duane Reade operate within the Retail Pharmacy USA Division of Walgreens Boots Alliance. Both businesses sell prescription and non-prescription drugs, and a range of household items, including personal care and beauty products. Walgreens provides access to consumer goods and services, plus pharmacy, photo department, health, and wellness services in the United States through its retail drugstores.

Hard Hit By COVID-19

The COVID-19 outbreak had a massive economic downturn on WBA. Walgreens sales dropped by about $700 million to $750 million. The most significant impact was in the United Kingdom where sales were down 85% in April and Walgreens took $2 billion in non-cash impairment charges. The company’s financials also show a 61-cent-to-65-cent per share operational impairment from the pandemic. The pandemic and the eventual lockdown significantly changed the shopping behavior of WBA’s customers worldwide as survival kits such as face masks and PPEs were prioritized. Following the imposed social distancing, customers patronized retail outlets with digital accessibility.

As noted by MarketWatch, Walgreens will close 48 Boots Opticians and cut office support headcount by 20% in U.K., impacting 4,000 jobs, or about 7% of the company’s workforce. Walgreens expects 2020 adjusted EPS of $4.65 to $4.75, including $1.03 to $1.14 impact from COVID-19.

Walgreens Boots Framework for Recovery

Walgreens has strategic partnerships with Microsoft Corporation (NASDAQ: MSFT) and Adobe Inc (NASDAQ: ADBE) for omnichannel service that will see WBA open 500 to 700 to clinics in more than 30 markets over the next five years. Under the partnership, Walgreens will make a $1 billion equity investment in VillageMD over the next three years, and Walgreens will have a 30% stake in the company when it is eventually launched.

As Wall Street investors are moved in part by positivity around a company, the VillageMD project may have a tremendous impact on Walgreen’s stock and a bullish run is expected in the coming weeks. Pharmaceutical companies around the world were tremendously impacted by the coronavirus pandemic, and a general boom is expected when a vaccine is discovered.

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