It claims the defendants overstated the company’s expected revenue for fiscal year 2024 and expressed false "confidence in the brand inflation, volume growth, cost execution, discipline, and overall contributions of (Walgreens') pharmacy division."
By hiding the true nature of the issues the pharmacy division was up against, the suit alleges, Walgreens shares were valued at artificially inflated prices.
The lawsuit also states directors and officers failed to maintain internal controls, in breach of their fiduciary duties.
Walgreens did not respond to a request for comment.
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The lawsuit points to a Oct. 12, 2023, earnings conference call and comments made by CEO Tim Wentworth and Executive Vice President and Global Chief Financial Officer Manmohan Mahajan.
In the call, Mahajan said “we expect U.S. retail pharmacy underlying adjusted operating income to be driven by immediate actions to improve the cost base and modest underlying growth in both retail and pharmacy.”
However, on June 27, 2024, the company detailed disappointing third quarter earnings, with adjusted earnings per share of $0.63, "down 36.6% on a constant currency basis compared to the year-ago quarter,” the lawsuit said. It also points to the third quarter press release announcing lower projections for the fourth quarter and year end.
In the conference call, Wentworth "admitted that '(we) are at a point where the current pharmacy model is not sustainable, and the challenges in our operating environment require we approach the market differently.' ”
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On this news, the lawsuit said, Walgreens' stock price fell $3.47, or 22.2%, from its closing price on June 26, 2024, of $15.66 per share to close on June 27, 2024, at $12.19 per share.
Since then, Walgreens' stock price has fallen further, closing at $9.38 on Aug. 28. This week was the first time since the 1990s that Walgreens stock has fallen below $10 a share.
In addition to Wentworth and Mahajan, the lawsuit names 10 other directors and officers including Rick Gates, senior vice president and chief pharmacy officer, and Stefano Pessina, executive chairman of the board and previous CEO from July 2015 until March 2021.
Walgreens already faces a proposed class action from shareholders due to its rapidly falling stock price over the past few months.
This derivative lawsuit is different from shareholder class actions in that it names individual directors and officers in the complaint and seeks a remedy for the company itself.
The lawsuit demands Walgreens be awarded damages and restitution from the individual defendants and that the company and defendants take steps to reform and improve corporate governance and internal procedures. Those reforms, the lawsuit said, may include strengthening the board’s supervision of operations, permitting Walgreens shareholders to nominate at least five candidates for election to the board and a proposal to ensure the establishment of effective oversight of compliance with applicable laws, rules and regulations.
This story first appeared in Crain's Chicago Business.
