Walgreens faces a shareholder lawsuit amid plummeting stock prices, raising questions about the company’s financial health and management practices.
At a Glance
- Shareholder Mark Tobias sues Walgreens and top executives for allegedly inflating financial outlook
- Lawsuit claims misrepresentation of pharmacy division’s performance and overstated revenue expectations
- Walgreens stock has fallen approximately 65% year-to-date
- Company faces multiple financial challenges, including high costs, unprofitable stores, and debt
Shareholder Takes Legal Action Against Walgreens
In a move that has sent shockwaves through the pharmaceutical retail industry, shareholder Mark Tobias has filed a lawsuit against Walgreens and its top executives in Illinois district court. The legal action alleges that the company inflated its financial outlook for its pharmacy business, leading to significant losses for investors.
The lawsuit names CEO Tim Wentworth, CFO Manmohan Mahajan, 10 other high-level executives, and board chairman Stefano Pessina as defendants. Tobias claims that these executives misled investors about the company’s financial health and prospects.
Allegations of Misrepresentation and Overstated Expectations
According to the lawsuit, Walgreens executives allegedly “overstated the Company’s expected revenue for the 2024 Fiscal Year … [and] falsely and materially claimed confidence in the brand inflation, volume growth, cost execution, discipline, and overall contributions of [Walgreens’] pharmacy division.”
The lawsuit is based on comments and earnings guidance from October 2022, when Walgreens initially issued a 2024 adjusted earnings per share guidance of $3.20 to $3.50. However, in June 2023, the company drastically cut its guidance to $2.80 to $2.95, citing “challenging pharmacy industry trends.”
Financial Fallout and Stock Price Decline
Following the announcement of the revised earnings guidance, Walgreens’ stock price plummeted by more than 22% and has continued to decline. The lawsuit claims that Walgreens misrepresented its operational success and overpaid $31.5 million in stock repurchases.
The financial troubles for Walgreens extend beyond the stock price decline. The company is grappling with high selling, general, and administrative (SG&A) costs, with approximately 25% of its stores being unprofitable. Additionally, Walgreens faces capped profitability due to interest payments and opioid settlement obligations.
Broader Financial Challenges
Walgreens’ financial woes have been compounded by several factors. S&P downgraded the company’s credit rating to junk status, forcing Walgreens to raise $750 million in junk bonds at over 8% interest. The pharmacy’s operating margin is negative, exacerbated by the end of COVID-related revenue boosts.
One-time expenses have also taken a toll on the company’s finances. These include a $5.8 billion write-off on Village MD and a $5.7 billion opioid settlement. Adding to the company’s troubles, the IRS claims Walgreens underpaid $2.7 billion in taxes.
Attempts at Recovery and Future Outlook
New CEO Tim Wentworth is attempting a turnaround, but structural problems persist. The company’s financials show a gross profit of $27 billion, but high SG&A costs of $25 billion leave only a slim operating profit. Interest payments and non-operating expenses further strain profitability.
In response to these challenges, Walgreens has reduced its quarterly dividend from $0.48 to $0.25. The company is also considering closing unprofitable stores and implementing cost-cutting measures to improve its financial position.
As Walgreens navigates these turbulent times, investors and industry observers will be watching closely to see if the company can address its financial challenges and regain investor confidence. The outcome of the shareholder lawsuit could have significant implications for the future of one of America’s largest pharmacy chains.
