Shares of pharmacy Walgreens Boots Alliance (WBA -0.78%) fell as much as 25.4% in trading on Thursday after reporting fiscal third-quarter 2024 results. Shares are still down 24.7% at 3 p.m. ET.
Weaker than expected results
Management said revenue was up 2.6% to $36.4 billion, and net income nearly tripled to $344 million, or $0.40 per share.
The big change was earnings guidance for the full year being cut from a range of $3.20 to $3.35 down to a range of $2.80 to $2.95 per share. This is the second time this year the company has cut guidance.
Management said they would close some unprofitable stores and push back on some products it deems as too low a margin.
Value stock or value trap?
It's easy to look at Walgreens today and see a value stock. At the low end of guidance, shares trade for just 4.2 times earnings. The problem is, the company's margins are extremely thin, and it has pressure from suppliers and customers.
Management said consumer demand was weak and theft, or shrinkage, was up, but the fact of the matter is Walgreens is rarely a low-cost supplier of products for consumers, so it's easy to see why sales aren't growing as quickly as hoped if consumers are feeling pinched by higher prices.
Given the decline of Walgreens' business and the likelihood it will shrink its footprint significantly, this is looking more like a value trap than a great buy for investors. There's just $8.9 billion in debt, but $21.4 billion in lease obligations hang over the company, and that'll keep me out of the stock.
