Walgreens Figures Suggest "Essential" Retailers Could Still Struggle Amid Coronavirus

It looked like wraparound lines and Lysol shortages were the biggest challenges “essential” retailers would experience in the early weeks of the COVID-19 pandemic. Then Walgreens held its fiscal Q2 earnings call Thursday.

The quarter started fine. Walgreens outstripped expectations: Revenue rose 3.7% to $35.8 billion and net income decreased 18.4% to $946 million. U.S. retail pharmacy sales grew 3.8% to $27.2 billion.

• When the COVID-19 outbreak accelerated across the U.S. in March, Walgreens reported a 26% comparable retail sales increase in the first three weeks of the month.

But then it stumbled.Sales fell sharply in the fourth week of March after shoppers had stockpiled their scrips.

• Comparable sales turned negative at a mid-teens rate of decline.
• Consumers are more concerned about having enough food than mastering winged eyeliner. So sales for cosmetics and other discretionary purchases took a hit.

Since no one’s traveling now, store traffic declines were sharpest in high-performing stores popular with tourists who forget to pack toothpaste, like the Las Vegas Strip.

End result: Walgreens joined the list of retailers that pulled forecasts for the rest of the year. Global CFO James Kehoe said losses due to COVID-19 will likely cancel out Walgreens’s gains from fiscal Q2. Shares fell as much as 8% in Thursday trading.

Zoom out: Shoppers are keeping their Clorox close and their pharmacies far away, regardless of the chain. During the third week of March, store traffic declined by 3.5% at CVS and 7% at Rite Aid, per retail traffic platform Placer.ai.

My takeaway: Because prescription refills aren’t as frequent as refrigerator restocks, Walgreens and its fellow pharmacies are more vulnerable than grocers to shoppers’ changing habits right now.

+ While we’re here: Only five drive-thru coronavirus testing sites have opened at major retailers so far. Three are at pharmacy chains.