Walgreens Cuts Dividend to Save Cash, Shares Plummet
Walgreens’ Struggle with Consumer Spending
Walgreens Boots Alliance is taking drastic measures to navigate through challenging times, with a nearly 50% reduction in its dividend payout. The decision comes amidst a backdrop of low consumer spending and fierce competition, causing the U.S. pharmacy chain’s shares to plummet by 11%.
Impact on Market Cap
The significant dividend cut has positioned Walgreens as the second-biggest drag on the blue-chip index, leading to an estimated loss of over $2 billion in the company’s market capitalization.
Challenges Faced by Walgreens
The pharmacy chain has been grappling with a decline in demand for COVID vaccines and testing, alongside reduced spending on personal care and beauty products by consumers cautious about inflation. In response, Walgreens announced a $1 billion cost-cutting program in October as it aims to regain market share lost to competitors like CVS Health.
Revised Sales Forecast
Amid the challenging landscape, Walgreens revised its sales forecast, projecting a low-single digit decline in same-store sales at its U.S. retail business, further emphasizing the impact of reduced consumer spending.
CEO’s Focus on Strengthening Walgreens
With an eye on fortifying the company, CEO Tim Wentworth, recently at the helm, acknowledged the arduous journey ahead in simplifying and fortifying Walgreens amidst the current challenges.
Financial Implications of Dividend Cut
Analysts anticipate that the 48% dividend cut, reducing it to 25 cents per share, could significantly bolster Walgreens’ balance sheet and yield annual savings of approximately $800 million. This comes as Walgreens carries long-term debt amounting to $7.59 billion as of November 2023.
Positive Earnings for Walgreens
Despite the turbulent climate, Walgreens exceeded profit estimates for its first full quarter under Wentworth’s leadership, supported by cost-cutting measures and higher drug prices. The company reported a loss of $67 million for the quarter, with an adjusted earnings of 66 cents per share, surpassing market expectations of 61 cents per share.
