Theft, free COVID tests dim Walgreens’ outlook

Walgreens Boots Alliance faces threats from widespread theft by organized gangs, free government COVID-19 tests and rising labor costs, casting doubt on its rosy outlook for the coming year.

The drug-store chain on Thursday raised its full-year adjusted earnings outlook to low-singledigit growth from flat following a fiscal first quarter that crushed Wall Street analysts’ expectations.

COVID-19 vaccines and tests propelled Walgreens’s quarterly beat, but its forecast implies a lowshare

profit than Wall Street expects, Raymond James analyst John Ransom wrote in a note to clients. The chain also faces a potential hit from the Biden administration’s plan to send 500 million tests to Americans free of charge.

It could be months before the government program begins, Walgreens Chief Financial Officer James Kehoe said Thursday on a call with analysts. But that could still hurt a business that brought in $200 million in the quarter, Jefferies analyst Brian Tanquilut said.

Meanwhile, Walgreens faces a steep rise in theft at its stores.

Shrinkage, the metric retailers use to quantify lost inventory, jumped 52 percent over the last two years, according to Kehoe.

“This is not petty theft, it’s not somebody who can’t afford to eat tomorrow,” the CFO said. “These are gangs that actually go in and empty our stores.”

Walgreens is also trying desperately to hang onto employees and attract new ones in order to keep pace with demand for vaccinations and other services. Already, staffing issues have resulted in cutting store hours at some locations. The company will invest another $120 million in wages, Brewer er said.

Still, Walgreens saw a resurgence across the retail segment in the quarter, including in over-thecounter, beauty and personal care products, Walgreens President John Standley said on the call. He described it as a “halo effect” from vaccinations and testing. Walgreens’ updated forecast includes administration of 30 million COVID-19 shots, 5 million more than previously anticipated.

Demand for at-home virus tests also helped Walgreens, as the chain captured about 45 percent of share for at-home tests, Kehoe said, much higher than its typical of about about 18 percent. He attributed Walgreens’ success to keeping the products in stock as they fly off shelves at retailers across the country.

Availability of tests from Walgreens should improve significantly by the middle of the month and stay sufficient for the next three months, he said.

“Beyond that, nobody can tell,” Kehoe said. “It’s all on where are the variants at a particular point in time. I think testing is here to stay for a considerable amount of time, but our full-year forecast is not riding on this I can assure you of that.”