Why Walgreens Boots Alliance fell another 22% in August

Actions of Walgreens Boots Alliance (WBA -3.57%) fell 22.1 percent in August, according to S&P Global Market Intelligence data.

The beleaguered drugstore chain didn’t even report earnings last month and was already in the dark by August. But Walgreens has seen headwinds, particularly news that more drug companies are introducing direct-to-consumer deals.

Is Walgreens Disrupted by DTC?

Walgreens has been under pressure all year, and shares fell slightly through August even as broader markets recovered from recession fears. Notable events at the start of the month included a $1.1 billion stock sale, or a 2% stake in a pharmaceutical distributor. Cencora (CHOIR -0.13%). While Walgreens still owns about 10 percent of Cencora, the August sale included all Walgreens shares that were “unencumbered.”

Walgreens is selling non-core assets as the company tries to turn around while paying down debt. Speaking of its debt, Walgreens also reported a refinancing earlier in the month, but at a significantly higher interest rate. On August 8, the company sold $750 million in unsecured bonds at an interest rate of 8.125%. What’s troubling about this is that the new notes will go towards paying off the existing notes due this year, which carried an interest rate of 3.8%. This is a reflection not only of the higher rate environment we are in, but also of the increased risk perceived to the Walgreens business by the debt holding community.

So management will have to pay significantly higher interest expenses even if they try to turn the business around. But even that seemed to become more difficult on August 27. on that day Eli Lilly (LLY -1.07%) announced that it will sell its GLP-1 weight loss drug Zepbound at a 50% discount when ordered from Lilly’s direct-to-consumer pharmacy, Lilly Direct. Also on August 27, Pfizer (PFE 0.32%) announced Pfizerforall, a direct-to-consumer telehealth platform.

While Walgreens may be a partner to Pfizerforall, it may also lose pharmacy drug retail sales and non-drug retail sales due to lost traffic. Of note, retail pharmacy accounts for the majority of Walgreens’ current revenue.

This return seems to be getting harder and harder

Walgreens shares are down 64% on the year, so some might think the stock is cheap right now. But be careful; while investors can make a huge amount of money when a rally works, most returns don’t.

So investors should probably wait until after Walgreens’ next earnings report to see if new CEO Tim Wentworth’s plans pan out in a positive way. He was just hired in October 2023, so it may take much longer than a year for his new initiatives to bear fruit, if at all.