A person drives past a Walgreens truck, owned by the Walgreens Boots Alliance, in Manhattan, New York City on November 26, 2021.

Andrew Kelly | Reuters

Wal vegetables on Thursday reported fiscal third-quarter earnings that came in below expectations and cut its full-year earnings forecast lower. The company indicated that the environment for pharmacies and American consumers is “challenging.”

The retail pharmacy giant now expects adjusted earnings of $2.80 to $2.95 per share for fiscal 2024. That compares with the company's previous guidance of $3.20 to $3.35 per share.

“We assumed in the second half that the consumer would get a little stronger,” but “that's not the case,” Walgreens CEO Tim Wentworth told CNBC.

He added that “consumers are absolutely baffled by the absolute prices of things, and the fact that some of them may not go up doesn't change their resistance to current prices. So we really had to be sharp, especially in discretionary matters.”

Still, Walgreens exceeded revenue estimates for the quarter thanks to strong performance in the healthcare segment. The company views this business division as critical to its continued efforts to transform from a major drugstore chain to a major healthcare company.

The results come as Walgreens tries to cut costs after a tough year last year low pharmacy reimbursement interest rates, weaker demand for Covid products and a challenging macroeconomic environment.

The company said Friday it is simplifying its U.S. healthcare portfolio and finalizing plans to close underperforming U.S. stores over several years, among other ongoing cost savings.

“75% of our stores today are driving 100% of our profitability,” Wentworth said. “What that means is that the others that we're looking at closely, we're going to finalize a number that we're going to close…”

Here's what Walgreens reported compared to what Wall Street expected, based on a survey of analysts by LSEG:

Profit per share: 63 cents adjusted versus 68 cents expected
Gain: $36.4 billion versus $35.94 billion expected

Walgreens posted revenue of $36.4 billion this quarter, up 2.6% from the same period a year ago.

The company reported net income of $344 million, or 40 cents per share, for the quarter. That compares with net income of $118 million, or 14 cents per share, in the same period a year ago.

Excluding certain items, adjusted earnings were 63 cents per share for the quarter.

Walgreens did not provide a new sales forecast for the fiscal year. The company hasn't provided that forecast since October, when it said it expected revenue of $141 billion to $145 billion.

Strong performance in the healthcare division

Walgreens reported growth across its three business divisions in the third fiscal quarter. But the company's U.S. healthcare division stood out, with revenue up 7.6% compared to the same period a year ago.

Revenue for the segment totaled $2.13 billion. Analysts had expected revenue of $2.08 billion, according to FactSet estimates.

The company said the higher revenue reflected primary care provider VillageMD and specialty pharmacy business Shields Health Solutions. Shields saw revenue increase 24% in the period, driven by growth within existing partnerships.

Specialty pharmacies are designed to supply medications that have specific processing, storage and distribution requirements. They are often intended for patients with complex conditions such as cancer and rheumatoid arthritis.

Walgreens and VillageMD

Source: Walgreens

These results come a quarter after Walgreens posted a steep net loss as it took a hefty charge of nearly $6 billion related to the decline in the value of its investment in VillageMD. The company now plans to close 160 VillageMD clinics, executives announced during the company's second-quarter earnings call in March.

“We are working with their management team to ultimately still be an investor, but meaningfully reduce our investments and gain some liquidity so that we can invest back into the retail pharmacy business that represents our future,” Wentworth told CNBC about the investment of the company. at VillageMD.

Walgreens' U.S. retail pharmacy segment generated $28.5 billion in sales in the fiscal third quarter, up 2.3% from the same period last year. Analysts had expected revenue of $28.34 billion, according to FactSet estimates.

That segment operates more than 8,000 drugstores in the U.S., selling both prescription and non-prescription drugs, as well as health and wellness, beauty, personal care and nutritional products.

The company said the revenue growth was entirely driven by comparable pharmacy sales and partially offset by a decline in retail sales.

Walgreens said pharmacy sales for the quarter increased 4.4% and comparable pharmacy sales increased 5.7% compared to the same period last year due to brand-name drug price inflation and prescription growth.

Total prescriptions filled in the quarter, including vaccines, totaled 306.4 million, up 0.5% from the same period a year ago.

Retail sales fell 4% this quarter compared to last year's quarter, and comparable retail sales fell 2.3%. The company pointed to, among other things, a 'challenging' retail environment.

Walgreens' international segment, which operates more than 3,000 stores abroad, posted sales of $5.73 billion in the fiscal third quarter. That is an increase of 2.8% compared to the same period a year ago.