This past week, Walgreens Boots Alliance, Inc. (NASDAQ:WBA) reported earnings, and much to the chagrin of investors, reported lower than expected levels of profitability.
The retailer and pharmacy chain has undertaken several strategic moves in a bid to bolster profitability, moves which have yet to pay off for investors hoping for a return to the company’s former growth trajectory.
Shares of Walgreens have sold off dramatically in recent months, following a market trend which has seen investors move away from traditional bricks and mortar retailers toward disruptive retailers and e-commerce players. In a bid to re-ignite investor interest in Walgreens, the company has attempted to become a preferred pharmacy for a variety of PBM narrow network, resulting in higher volumes but profit margins which have been weaker than in the past.
To offset this loss of profitability, Walgreens has moved toward pushing higher margin convenience items in its locations, a move which has yet to pan out successfully as consumers increasingly shop for such goods via other channels.
My take is that the retail component of Walgreens' business is likely to continue to stagnate over time, and investors will be increasingly focused on the pharmacy portion of the business to drive earnings in the years to come.
I would be hesitant with Walgreens' stock at the moment, and would encourage investors looking to invest in retail to focus on other niche areas at this point in time.
Invest wisely, my friends.
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