Walgreens’ mountain of misery piles up even higher with class action lawsuit from shareholders and skeptical industry opinion

Walgreens Boots Alliance (WBA) is facing dissatisfaction among shareholders and analysts. The class action lawsuit, filed by investor Rizwan Bhailain on July 12 in the U.S. District Court for the Northern District of Illinois, accuses WBA of misleading investors with “overwhelmingly positive statements” about its pharmacy division while “concealing material adverse facts,” such as that the pharmacy division was “not truly equipped to address the ongoing challenges in its industry” and that “Walgreens would need significant restructuring to create a sustainable model.” The proposed class action lawsuit targets those who purchased shares between October 12, 2023, immediately before CEO Tim Wentworth took office, and June 26, 2024. Wentworth, CFO Manmohan Mahajan and chief pharmacist Rick Gates are also named in the lawsuit. The law firms involved are Lubin Austermuehle PC, the law firm of Terrence Buehler, both in Illinois, and Levy & Korsinsky, LLP in NYC. Crain’s Chicago business, Scribd (full text of the lawsuit)

The industry’s stock market analysts are also not enthusiastic about the current developments. With the stock still stagnating below $12, Walgreens’ billion-dollar strategy under Tim Wentworth has not exactly inspired optimism. The forecast for the full year was lowered just a few weeks ago after the third quarter results were announced. (TTA July 2) The assumption, based on the third-quarter conference call, that a quarter of Walgreens’ 8,700 U.S. stores could close by 2027 has not boosted confidence at influential firm Raymond James. In a recent report, one analyst noted, “We are not aware of any retailer that has successfully implemented a ‘shrink to survive’ strategy.”

The grim headline from MedCityNews: Interestingly, “Walgreens’ Finances Are in Distress — But All Hope Is Not Lost” had no counter evidence from Walgreens when asked by author Katie Adams. She tried to find some optimistic voices, but the best she could get was an optimistic view from Stephanie Davis, senior equity research analyst at Barclays. She endorsed the shrinkage of VillageMD as the biggest drag on Walgreens’ finances, but acknowledged that “headwinds” in pharmacy retail warranted an underweight or sell rating.

Peter Ax, CEO of UpScript Health, was quoted extensively pointing out other factors affecting both the “front end” of the store and the pharmacy. In the front end, there is theft, staff shortages, supply chain bottlenecks and a lack of money from consumers. In the pharmacy end, declining margins, pharmacist shortages and pressures between current capital costs and Walgreens’ finances will likely hinder store redesign and adoption of efficient technology. Another factor is that patient matching between pharmacies and primary care has proven extremely difficult.

Even when sites close, it can be difficult to terminate some leases or undergo “repurposing.” In addition, many of these closures have social and political implications to consider.

TThe ride continues to be tough for Wentworth and Company, and it needs some good news, fast. Even if Walgreens is “too big to fail,” as the Trilliant analyst quoted in the article put it, this is not true for other companies.