To say that pharmacy retailer Walgreens Boots Alliance (WBA 2.86%) has been struggling would be a massive understatement. It's coming off a horrendous year in 2024, when its share price crashed by 64%. The stock has been trading around levels it hasn't been at in decades as investors are concerned about the company's future.
However, contrarian investors may hope that this can be a good turnaround play. That assumes that Walgreens can drastically cut costs and improve its financials as it focuses on profitability. The company recently reported some encouraging earnings numbers, but were they good enough to suggest that it's on the right path and that this will be a much better year for the beaten-down healthcare stock?
Walgreens beats expectations in Q1 -- but numbers still don't look great
Last week, Walgreens released its first-quarter earnings numbers for fiscal 2025. For the period ending Nov. 30, 2024, the company's revenue came in at $39.5 billion, which beat analyst expectations of $37.4 billion. And its adjusted earnings per share of $0.51 also came in higher than the $0.37 that Wall Street was expecting. CEO Tim Wentworth says that the company has been "making progress against our financial and strategic priorities, despite the challenging backdrop for our consumer."
But despite the earnings beat, the company's unadjusted numbers still showed a loss. For the quarter, Walgreens posted an operating loss of $245 million, which was significantly higher than the $39 million loss it posted in the prior-year period. Operating profit and loss can be a better indicator of overall profitability, as it comes before taxes and other nonrecurring items. Walgreens has been incurring additional expenses due to restructuring efforts as it plans to shut down stores, which can explain the worsening bottom line, but it remains a cause for concern.
The company still burned through $140 million in cash from its day-to-day operating activities during the quarter. That's an improvement from the $281 million it used up a year ago, but it still shows that Walgreens is using up more cash than what it's bringing in.
Low expectations could give the stock room to run
I think that, based on the recent results, it's far too early to tell whether Walgreens is on the right path. There are still significant concerns about its financials and whether it can get back to true accounting profitability in the future.
That being said, the bar may be so low for the stock that even these kinds of results can generate excitement. On Jan. 10, the stock closed at a price of $11.76 -- a whopping 28% higher than where it finished on the previous trading day ($9.22). Investors are looking for any positive sign for this business, which has been plagued with seemingly endless negativity. By posting an earnings beat, the company appears to have delivered on that.
With such low expectations from investors, it's possible that the stock could rally this year simply by demonstrating incremental, positive gains. The turnaround by no means needs to be complete for the stock to have a good year. After taking such a massive beating in 2024, there could be room for the stock to generate significant returns for investors this year.
Should you invest in Walgreens right now?
Walgreens is off to a strong start to 2025, but it's by no means a safe buy. Its earnings numbers did give investors reason for optimism, but there are still huge questions about the business, such as whether it can stop the cash burn and if it will be able to get out of the red. There's also the bigger uncertainty around its overall competitiveness as tech companies invest heavily into healthcare.
At the very least, investors may want to consider waiting for a couple of quarters before making a decision on Walgreens. Its recent results were good, but they were by no means strong enough to suggest that the business is in good shape and that the stock is a safe investment. There could still be a lot of volatility for Walgreens' stock, and unless you're prepared for that, you may be better off taking a pass on it for the time being.
