Walgreens Boots Alliance Slips On Labor Cost Concerns 

Walgreens Boots Alliance invests in labor and sales

Walgreens (NASDAQ: WBA) It reported a big quarter where it beats net earnings and results, raises guidance, yet stocks go down. The market appears to be holding on to the company’s increased labor-related spending, which Walgreen refers to as an investment in team members, and its potential impact on the bottom line.

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While we are a concern, we are more impressed with the positive results announced for the quarter and the outlook for the rest of the year. Walgreen’s invests in team members and we love that because you have to have team members to have a team. We’ve also seen this in the restaurant sector, where investing in employees pays off because hiring a facility is like opening the door to sales, revenue, and profits.

“A strong start to the fiscal year boosts our confidence in the future, and as a result, we are raising our full-year guidance and increasing investments in our employees,” CEO Rosalind Brewer

Walgreens Boots Alliance Exceeds Expectations

The Walgreens Boots Alliance’s turnaround plans have gained traction commensurate with the beginnings, but the effort appears to be gaining momentum. The company reported $33.9 billion in net revenue, up 7.4% from a year ago and beating the Marketbeat.com consensus by 280 basis points. Gains were driven by strength across all sectors with notable strength in core retail in the US and Boots in the UK. US retail companies jumped 10.1% from the past driven by an 88% increase in e-commerce and specifically on the same day. Vaccines and COVID-19 tests are also listed as growth drivers.

Moving to the bottom of the report, the company saw significant margin expansion with operating income up nearly 50% on an adjusted basis. GAAP’s $4.13 earnings beat the Marketbeat.com consensus by more than $3.00, but a one-time factor in the prior year resulted in a net loss for the period but solid core results. On an adjusted basis, the price of earrings of $1.68 is up 53% from last year and beat expectations by $0.34.

The best news is that the momentum is expected to continue at least in the current quarter. The company raised full-year EPS guidance for the second time in two quarters to a combination of increased single digits compared to previous expectations of flat EPS and the Marketbeat.com consensus expecting a mid-single-digit decline. The guidance includes, notably, a positive impact on a 200 basis basis due to investment in team members offset by plans for additional investment of team members.

High yield Walgreens pulls back into support

Walgreens Boots Alliance is a high-yield stock with a positive outlook for distribution growth as well as a transformation story. The current payout is over 3.5% in yield which is a safe payout as well. The company has been growing for the past six years at a compound annual growth rate of 5% and only paying 40% of consensus estimates that we know are very low. In our view, investors should not only expect to see a seventh consecutive dividend increase later in the fiscal year, but it should be larger than history might suggest.

Walgreens Boots Alliance shares tumbled in the wake of the earnings news, but we consider this a buying opportunity. Price action is down more than 2.0% at the intraday low but buyers have intervened to show their support. The forming candle has a long lower shadow denoting support and above the top of the previous range. Price action may move sideways from here but we expect it to form another support base and start moving higher by the middle of the year.
Walgreens Shoes Alliance Slips Over Labor Cost Concerns

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