Walgreens sued by shareholder amid plummeting stock price

Dive Temporary:

Walgreens and its prime executives are being sued for allegedly breaching their obligation to shareholders by inflating the monetary outlook for its pharmacy enterprise, in one more problem for the beleaguered retail well being big.
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 progress, price execution, self-discipline, and total 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 usually are not performing in Walgreens’ finest pursuits, in keeping with the grievance. 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 firms 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 by way of providing extra direct healthcare companies, together with by constructing out its major 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 12 months, through 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 stated Walgreens’ U.S. retail pharmacy enterprise would have the ability to enhance its working earnings because of “quick actions to enhance the associated fee base and modest underlying progress in each retail and pharmacy.” Together with price cuts, Walgreens’ healthcare supply enterprise ought to enhance profitability by bringing on new sufferers, amongst different actions, Mahajan stated.

These statements had been deceptive, the lawsuit alleges. With them, “defendants veiled the truth: that [Walgreens’] pharmacy division was not really outfitted to adapt to ongoing hurdles throughout the business and the Firm would as an alternative require vital restructuring with the intention to create a sustainable mannequin,” Tobias’ grievance 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 saying its third quarter outcomes.

Walgreens cited “difficult pharmacy business tendencies” as the explanation behind the minimize.

“The present pharmacy mannequin isn’t sustainable,” Wentworth stated through the firm’s name with traders. Following the decision, Walgreens’ inventory fell greater than 22% by the top of the day. It has fallen additional since.

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 tens of millions of shares of frequent inventory on the inflated value, overpaying by $31.5 million — a breach of their fiduciary duties, in keeping with the grievance.

Walgreens can 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.