Investor Rizwan Bhailain, who filed the lawsuit July 12 in the U.S. District Court for the Northern District of Illinois, alleges the June 27 announcement was a surprise following quarters of optimism about the company’s pharmacy segment. On the day third-quarter earnings were released, the stock dropped 22% to $12.19, the lowest since the 1990s.
Bhailain’s complaint alleges company executives violated federal securities laws when they made “materially false and misleading statements” and engaged in a “scheme” to deceive the market.
The lawsuit argues the steep stock decline and critical reports from industry analysts offer proof the market “placed significant weight on Walgreens’ prior revenue and sales estimates” and was unaware of the dire challenges in the pharmacy segment.
“Defendants provided these overwhelmingly positive statements to investors while, at the same time, disseminating materially false and misleading statements and/or concealing material adverse facts concerning the true state of Walgreens’ pharmacy division; notably, that it was not truly equipped to handle the ongoing challenges in its industry and that Walgreens would require significant restructuring to create a sustainable model,” the lawsuit reads. “Such statements absent these material facts caused plaintiff and other shareholders to purchase Walgreens’ securities at artificially inflated prices.”
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Walgreens CEO Tim Wentworth, Chief Financial Officer Manmohan Mahajan and Chief Pharmacy Officer Rick Gates are listed as defendants in the lawsuit. The proposed class includes hundreds of thousands of investors who purchased or acquired Walgreens stock between Oct. 12, 2023, and June 26, 2024.
A Walgreens spokesperson declined to comment.
The lawsuit represents the latest challenge in front of Walgreens, which is struggling to perform in a changing retail and pharmacy landscape. Several quarters of poor performance led the company to launch a $1 billion cost-cutting plan and a strategic review of the entire business, both of which are intended to boost profits and investors’ confidence. But so far, there’s little evidence the plan is working or will pay dividends anytime soon.
Walgreens stock is down 60% over the last year, trading at around $12 today.
As disclosed in the June earnings report, Walgreens hopes that closing as many as 25% of its 8,000 stores may help stabilize the business. But some industry analysts are skeptical of the strategy. As one Raymond James analyst put it in a recent report: “We are unaware of any retailer successfully adopting a ‘shrink to survive’ strategy.”
This story first appeared in Crain's Chicago Business.
