Dive Transient:
- Walgreens and its high executives are being sued for allegedly breaching their responsibility to shareholders by inflating the monetary outlook for its pharmacy enterprise, in yet one more problem for the beleaguered retail well being large.
- Beginning final fall, Walgreens CEO Tim Wentworth and CFO Manmohan Mahajan “overstated the Firm’s anticipated income for the 2024 Fiscal Yr … [and] falsely and materially claimed confidence within the model inflation, quantity development, value execution, self-discipline, and general contributions of [Walgreens’] pharmacy division,” reads the lawsuit filed on Tuesday in Illinois district courtroom. The lawsuit additionally names 10 different high-level executives — and Walgreens board chairman Stefano Pessina — as defendants.
- The swimsuit was filed by Mark Tobias, who has held shares in Walgreens since late 2022. Tobias lodged the lawsuit on behalf of shareholders and the corporate itself, given its administrators will not be performing in Walgreens’ greatest pursuits, in keeping with the criticism. Tobias is asking that Walgreens be awarded damages from the executives, and take steps to enhance company governance like rising board oversight.
Dive Perception:
Walgreens is likely one of the largest retail pharmacy and healthcare corporations on the planet, however has struggled amid weakening front-of-store gross sales and decrease reimbursement in its core pharmacy enterprise.
The Deerfield, Illinois-based firm tried to resuscitate its flagging monetary well being via providing extra direct healthcare companies, together with by constructing out its main care capabilities, however bumped into challenges making the initiative worthwhile.
Tobias’ lawsuit is rooted in feedback and earnings steerage Walgreens printed in mid-October final yr, in the course of the retailer’s shift to care supply.
On Oct. 12, Walgreens issued 2024 adjusted earnings per share steerage of $3.20 to $3.50.
On a name with traders the identical day, Mahajan mentioned Walgreens’ U.S. retail pharmacy enterprise would be capable to enhance its working revenue due to “rapid actions to enhance the associated fee base and modest underlying development in each retail and pharmacy.” Together with value cuts, Walgreens’ healthcare supply enterprise ought to enhance profitability by bringing on new sufferers, amongst different actions, Mahajan mentioned.
These statements had been deceptive, the lawsuit alleges. With them, “defendants veiled the truth: that [Walgreens’] pharmacy division was not really geared up to adapt to ongoing hurdles inside the trade and the Firm would as an alternative require vital restructuring to be able to create a sustainable mannequin,” Tobias’ criticism reads.
The value of Walgreens’ inventory grew to become artificially inflated consequently, the lawsuit alleges.
Then, on June 27, Walgreens slashed its 2024 adjusted earnings per share steerage to $2.80 to $2.95 when asserting its third quarter outcomes.
Walgreens cited “difficult pharmacy trade developments” as the rationale behind the minimize.
“The present pharmacy mannequin just isn’t sustainable,” Wentworth mentioned in the course of the firm’s name with traders. Following the decision, Walgreens’ inventory fell greater than 22% by the tip of the day. It has fallen additional since.
Walgreens’ inventory has reached its lowest worth for the reason that late Nineteen Nineties
$WBA value at shut, Aug. 29, 2014 – Aug. 29, 2024
From October to June, Walgreens misrepresented its operational success to the general public, the lawsuit alleges. As well as, throughout that point the corporate repurchased hundreds of thousands of shares of widespread inventory on the inflated value, overpaying by $31.5 million — a breach of their fiduciary duties, in keeping with the criticism.
Walgreens can also be going through one other federal securities fraud lawsuit pending in entrance of the identical Illinois courtroom. The corporate didn’t reply to a request for remark for this story.
