Walgreens has sued a shareholder amid its declining stock price

Diving:

• Walgreens and its top executives are being sued for breaching their duty to shareholders by inflating the financial outlook for its pharmacy business, in another challenge to the beleaguered retail health giant.

• Beginning last fall, Walgreens CEO Tim Wentworth and CFO Manmohan Mahajan “overstated the company’s expected revenue for fiscal 2024 … (and) falsely and materially asserted confidence in brand inflation, volume growth, cost execution, discipline and general contributions. of (Walgreens’) pharmacy division,” the suit, filed Tuesday in Illinois District Court, states. The suit also names 10 other high-level executives — and Walgreens board chairman Stefano Pessina — as defendants.

• The lawsuit was filed by Mark Tobias, who has owned stock in Walgreens since late 2022. Tobias filed the lawsuit on behalf of shareholders and the company itself, arguing that its executives are not acting in the best interest of Walgreens, according to the complaint. Tobias is calling for Walgreens to receive executive compensation and take steps to improve corporate governance, such as increasing board oversight.

Diving Perspective:

Walgreens is one of the world’s largest retail and healthcare pharmacy companies, but it has struggled amid weakening front-of-store sales and lower reimbursements in its core pharmacy business.

The Deerfield, Illinois-based company has been trying to revive its financial health by offering more direct healthcare services, including expanding its primary care capabilities, but has encountered challenges making the initiative profitable.

Tobias’ lawsuit has its roots in the commentary and earnings guidance Walgreens released in mid-October of last year during the retailer’s shift to care delivery.

On Oct. 12, Walgreens issued 2024 adjusted earnings per share of $3.20 to $3.50.

In a call with investors the same day, Mahajan said Walgreens’ U.S. retail pharmacy business will be able to improve its operating income due to “immediate cost base improvement actions and modest underlying growth in both retail as well as in the pharmacy”. Along with cutting costs, Walgreens’ health care delivery business should improve profitability by attracting new patients, among other things, Mahajan said.

Those statements were misleading, the lawsuit alleges. With them, “defendants glossed over the reality: that (Walgreens’) pharmacy division was not actually equipped to adapt to ongoing industry obstacles, and the company would instead require significant restructuring to create a sustainable model.” it appears in Tobias’ complaint.

Walgreens’ stock price was artificially inflated as a result, the lawsuit alleges.

Then on June 27, Walgreens cut its 2024 adjusted EPS guidance to $2.80 to $2.95 when it announced its third-quarter results.

Walgreens cited “challenging trends in the pharmacy industry” as the reason behind the discount.

“The current pharmacy model is not sustainable,” Wentworth said during the company’s call with investors. Following the call, Walgreens shares fell more than 22% by the end of the day. Since then it has decreased.

Walgreens shares hit their lowest value since the late 1990s

$WBA closing price, August 29, 2014 – August 29, 2024

From October to June, Walgreens misrepresented its operating success to the public, the lawsuit alleges. Additionally, during that time, the company repurchased millions of shares of common stock at an inflated price, overpaying by $31.5 million — a breach of their fiduciary duties, according to the complaint.

Walgreens also faces another federal securities fraud lawsuit pending in the same Illinois court. The company did not respond to a request for comment for this story.

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