Walgreens to close 1,200 U.S. stores in bid to steady operations
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Walgreens will close about 1,200 locations over the next three years as the drugstore chain seeks to turnaround a struggling U.S. business that contributed to a $3 billion quarterly loss.
Company shares soared Tuesday after Walgreens detailed the plan and also reported better-than-expected quarterly results.
The company said Tuesday that about 500 stores will close in the current fiscal year and should immediately support earnings and free cash flow. Walgreens didn’t say where the store closings would take place.
Company leaders said the initial wave of closings will take place mostly in the back half of its fiscal year, which started last month. Walgreens will prioritize poor-performing stores where the property is owned by the company, or where leases are expiring.
Walgreens operates about 8,500 stores in the United States and a few thousand overseas. All of the stores that will be closed are in the United States.
CEO Tim Wentworth told analysts Tuesday that the majority of its stores, or about 6,000, are profitable and provide the company with a foundation to build on.
“This solid base supports our conviction in a retail pharmacy led model that is relevant to our consumers, and we intend to invest in these stores over the next several years,” said Wentworth, who became CEO nearly a year ago.
Walgreens Boots Alliance Inc. said in late June that they were finalizing a turnaround plan in the U.S., and that it may lead to hundreds of store closings.
The plan announced Tuesday includes 300 store closures approved under a previous cost-cutting plan.
Wentworth said the Walgreens stores that remain will help the company respond more quickly to shifting consumer behavior and buying patterns.
Yet even the Walgreens stores that are performing well are not immune to broader challenges facing traditional drugstore chains, such as intensifying pressure from online outlets and dollar stores, said Neil Saunders, managing director of consulting and data analysis firm GlobalData.
“All these things have the potential to undercut store performance and Walgreens needs to ensure that this does not happen,” Saunders said in an email. “If it doesn’t, the latest slate of store closures will not be the last and Walgreens will enter the dangerous spiral of being an ever-shrinking business.”
Walgreens, like its competitors, has struggled for years with tight reimbursement for the prescriptions it sells as well as the rising costs of operating stores.
Rival CVS Health Corp. is closing 900 stores. Another major chain, Rite Aid Corp., emerged from bankruptcy protection this year after whittling its store count down to about 1,300 locations.
Saunders said that the latest round of closures will raise concerns about emerging pharmacy deserts, parts of the country were people don’t have access to a drugstore.
Walgreens also has been backing away from a plan to add primary care clinics next to some stores after an aggressive expansion under previous CEO Rosalind Brewer.
The Deerfield, Illinois, company said in August that it was reviewing its U.S. healthcare business, and it might sell all or part of its VillageMD clinic business. That announcement came less than two years after the company said it would spend billions to expand it.
The company began the year buy cutting the dividend it pays shareholders to raise cash. Six months later, it slashed its forecast for 2024.
Walgreens said Tuesday that its net loss swelled to more than $3 billion in the final quarter of the year, dragged down by U.S. retail and pharmacy sales. It also booked some hefty charges tied to opioid litigation settlements the company had recognized in previous quarters and an equity investment in China.
Adjusted per-share earnings actually topped Wall Street expectations by 3 cents and its quarterly revenue of $35.75 billion easily surpassed analyst projections by nearly $2 billion, according to FactSet.
But Walgreens lost a whopping $8.64 billion this fiscal year, more than $10 per share for investors.
The company said Tuesday that expects adjusted earnings in the new fiscal year to fall between $1.40 and $1.80 per share, with growth in its U.S. healthcare and international businesses countering the U.S. retail pharmacy decline.
For the fiscal 2025, analysts expect adjusted earnings of $1.72 per share.
Walgreens shares jumped more than 13%, or $1.20, to $10.20 after markets opened Tuesday.
The stock had shed nearly two thirds of their value so far this year, falling to $9 as of Monday’s close.