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Walgreens to Close 150 U.S. Stores Over the Next Year

Cost-savings targets raised as 3rd-quarter profit for health care business falls short of expectations
walgreens
Photograph: Shutterstock

Walgreens Boots Alliance (WBA) disclosed plans to shut another 150 U.S. drug stores in reporting disappointing earnings results this week for its fiscal 2023 third quarter.

Net income for the quarter ended May 31 came in at $118 million, or 14 cents per diluted share, down from $289 million, or 33 cents per diluted share, a year earlier, WBA said. On an adjusted basis, net earnings were $860 million, or $1 per diluted share, versus $834 million, or 96 cents per diluted share, in the fiscal 2022 quarter. Wall Street analysts’ consensus forecast was for adjusted earnings per share of $1.07. Sales climbed 8.6% year over year (8.9% in constant currency) to $35.42 billion.

In a conference call with analysts on Tuesday, WBA executives noted that a difficult operating environment squeezed profits as the company works to ramp up its U.S. Healthcare business.

“Our performance in the third quarter did not meet our overall expectations, and we are disappointed to have to change our fiscal 2023 guidance. While we achieved good sales growth and returned to adjusted earnings growth in the quarter, several dynamics created margin pressures that we are factoring into our full-year outlook,” WBA CEO Rosalind Brewer told analysts. “We have seen changing market trends that have consumers prioritizing value in response to a more uncertain and challenging economic environment. There has been a steeper dropoff in COVID vaccines and testing with the end of the public health emergency. We are also experiencing a slower profit ramp for U.S. Healthcare.”

WBA lowered its fiscal 2023 adjusted EPS guidance to $4.00 to $4.05 from $4.45 to $4.65, attributing the change to “consumer and category conditions,” a lower COVID-19 contribution and a “more cautious macroeconomic forward view.”

“While we’re confident in the range and scale of our health care business, we are disappointed with the pace of our path to profitability,” WBA U.S. Healthcare President John Driscoll said on the call. “U.S. Healthcare missed targets due to VillageMD and CityMD underperformance, directly related to reduced COVID, cold and flu season, and softer market demand. We’re taking immediate actions to drive improved profitability. We anticipate this year will remain a transition year, as we take action to deliver value and drive profitability. We’re rightsizing our cost structure through optimizing overhead and revenue synergies to better match market demand.”

To that end, WBA said it has raised its Transformational Cost Management Program target from $3.5 billion to $4.1 billion in overall savings through fiscal 2024. Global Chief Financial Officer James Kehoe noted that the change marked the sixth target increase for the program, which launched in late 2018. The planned store closings—including Boots drug and health-and-beauty stores in the United Kingdom—fall under the program.

“Let me talk to a couple of the cost-saving initiatives,” Kehoe said on the call. “We just completed an organization restructuring, which included transforming our headquarters to better align our resources with our strategic priorities. This led to the elimination of more than 500 roles, representing around 10% of our corporate and U.S. support office workforce,” Kehoe said in the analyst call. “Our pharmacy of the future operating model will drive significant savings. We are optimizing the model through our micro-fulfillment centers, tech-enabled centralization of in-store activities and tele-pharmacy solutions. These initiatives will also elevate the role of the pharmacist and improve patient engagement. Finally, we will continue to optimize our locations and opening hours and expect to close an additional 300 locations in the U.K. and 150 locations in the U.S.”

The U.S. stores would be shut by the close of the next fiscal year on Aug. 31, 2024, WBA reported. Closings of the Boots locations would be within the next 12 months, the company said.

Walgreens finished fiscal 2022 with 8,886 stores in the United States, including Puerto Rico and the U.S. Virgin Islands, down from 8,965 at the end of fiscal 2021. In August 2019, the retailer had unveiled plans to close 200 drug stores, or about 3% of its U.S. footprint. Around the same time, chief rival CVS Health had announced a program to shut about 900 CVS Pharmacy drugstores over the next three years.

Walgreens’ U.S. Retail Pharmacy business saw solid top-line growth in the 2023 third quarter, with sales up 4.4% to $27.87 billion and reflecting a 6.3% uptick in the pharmacy and a 1% decline in the front end. Comparable-store sales rose 7%, with a dip of 0.2% in the front end and a gain of 9.8% in the pharmacy. The latter included a 1.6% increase in prescriptions filled (+2.8% excluding immunizations).

Also during the third quarter, WBA said Walgreens “addressed industrywide pharmacist labor shortage” by returning 300 stores to normal pharmacy operating hours and optimizing hours at another 500 stores. The company, too, operated nine automated micro-fulfillment centers—supporting 3,900 stores—as of the quarter’s end. Operating in a central-fill pharmacy environment, the centers dispenses and ship a range of prescriptions to Walgreens stores.

Deerfield, Ill.-based Walgreens Boots Alliance operates the largest U.S. drug chain, with more than 9,000 units under the Walgreens and Duane Reade brands in all 50 states. It also controls Boots stores in Europe and Asia and international wholesale and distribution networks under the Alliance Healthcare banner.

A version of this story originally appeared in CSP sister publicationWinsight Grocery Business.

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