Walgreens Attributes Disappointing Results to Cautious Consumer Behavior

The story of the cautious consumer continues as Walgreens reflects on its latest quarterly earnings.

On Tuesday (June 27), after the company issued a warning that its profits are projected to fall below initial expectations, the stock of Walgreens Boots Alliance plummeted. The decline was attributed to the declining demand for COVID-19 vaccines and a weakening consumer spending environment.

“We saw lower-than-expected COVID-related demand,” Walgreens CEO Rosalind Brewer said on the company’s third quarter earnings call on Tuesday. “We had called out COVID as a wildcard heading into the quarter and have unfortunately seen less patient willingness to vaccinate.”

During the latest quarter, which ended on May 31, Walgreens administered a total of 800,000 COVID-19 vaccines — a decline of 83% year over year.

Walgreens Cuts Anti-Theft Measures

In January, Walgreens said it was considering dialing back on its retail-theft precautionary moves.

“We probably put in too much, and we might step back,” Walgreens Boots Alliance Global Chief Financial Officer James Kehoe said, referring to the company’s recently increased security measures.

During the pandemic, theft rates among retailers, including Best Buy, soared as organized theft groups took advantage of the increased online demand. These criminals stole goods and sold them to online vendors. But in time, many retailers observed a decline in theft rates.

Since then, a new law that aims to tackle organized retail theft and the trade of counterfeit and hazardous items on digital platforms has gone into effect: the INFORM Consumers Act.

Read more: Inform Act Cracks Down on Organized Retail Theft

In April, Walgreens reportedly had good results from new retail media advertising tools offered by Meta. According to Meta, Walgreens collaborated with a consumer-packaged goods (CPG) brand and employed an advertising tool to increase sales of health remedies by 3.9% and skincare products by 2.5%.

Read more: Merchants and Brands Seeing Sales Boost From Retail Media Partnerships

But the efforts weren’t enough to sway consumers to spend more with Walgreens.

The Cautious Consumer

During the earning call, the company also attributed its challenges to the broader macroeconomic conditions. Walgreens’ CEO described their consumer base as being “more cautious and value driven.”

“Our customer is feeling the strain of higher inflation and interest rates, lower [SNAP] benefits and tax refunds and an uncertain economic outlook,” Brewer said during the call. “They are pulling back on discretionary and seasonal spend and responding strongly to promotional activity.”

Solidifying this notion are PYMNTS findings.

According to the PYMNTS inflation report, “Consumer Inflation Sentiment: Perception Is Reality,” distributed in January, at the time consumers were cutting down on discretionary retail purchases while trading down retail goods and shopping experiences.

Fast forward to May, PYMNTS finds that consumers are still cautious and are turning to less expensive merchants for high-trust items like consumer-packaged goods (CPG), but consumers are less willing to make compromises on fresh, perishable foods.

The most recent research conducted for PYMNTS’ Consumer Inflation Sentiment series, titled “Consumer Inflation Sentiment Report: Consumers Cut Back by Trading Down,” analyzed data from an April survey involving over 2,000 U.S. consumers and found that 47% of grocery shoppers have transitioned to less-expensive merchants.

For housekeeping supplies, 35% of consumers have chosen less-expensive merchants, while for personal care products and snacks, the figures stand at 33% and 32% respectively. However, when it comes to the outer aisles of grocery stores, fewer consumers are inclined to trust discount merchants. Only 29% opt for trading down when it comes to dairy or fruits and vegetables, 27% for fresh meat, and 25% for prepared food.

In an interview with PYMNTS, Sean Turner the co-founder and chief technology officer of retail technology firm Swiftly, highlighted that grocery shoppers have become more intentional in their decision-making process.

Turner mentioned that shoppers are increasingly using coupons and dedicating more time to plan their grocery shopping trips. He noted, “They’re really trying to compare prices across different stores. They might go to [different retailers’ apps] and search for the same product there to see where it’s cheapest or where they can get a coupon or a discount.”

Walgreens by the Numbers

Walgreens adjusted its full-year earnings per share guidance. The company revised its previous range of $4.45-$4.65 to a new range of $4.00-$4.05.

Following the announcement, Walgreens’ shares fell about 10%.

In the third quarter, Walgreens reported revenue of $35.42 billion, slightly surpassing analyst estimates of $34.21 billion. Additionally, Walgreens’ gross margins were 18.8%.