Walgreens Boots Alliance (WBA.O) announced plans on Tuesday to close 1,200 stores over the next three years as part of a turnaround strategy led by its new CEO, Tim Wentworth. The pharmacy chain operator has been struggling with weak consumer spending and lower drug reimbursement rates.
Despite these challenges, the company managed to narrowly surpass Wall Street’s lowered expectations for its fourth-quarter adjusted profit, and its earnings forecast for the upcoming fiscal year was mostly in line with analysts’ estimates. Following the announcement, Walgreens’ shares jumped 12.3% to $10.11 in morning trading, though the stock has dropped 65% year-to-date, making it the worst performer on the S&P 500 index.
Analyst Michael Cherny from Leerink Partners commented that the forecast appeared better than the worst-case scenario but pointed out that Walgreens continues to face macroeconomic challenges, which persisted throughout the quarter. Pharmacy chains, including Walgreens, have been grappling with several issues, including consumers avoiding high-priced grocery items and increasing pressures from pharmacy benefit managers regarding reimbursement for prescriptions.
Since assuming his role as CEO, Wentworth has introduced a number of initiatives aimed at restructuring the company. These changes include the removal of several mid-level executives and the launch of a $1 billion cost-cutting program. Wentworth acknowledged that the turnaround process would take time but expressed confidence that it would result in substantial financial and consumer benefits in the long term.
Chief Financial Officer Manmohan Mahajan shared details on the store closures, stating that 500 locations would be shut down by 2025, with a focus on underperforming stores and those that are cash-flow negative. Walgreens will also target stores with lease expirations in the coming years. As of August 31, 2023, the company operated over 8,000 stores in the United States.
In its fiscal fourth quarter of 2024, Walgreens reported a $3 billion loss, compared to a $180 million loss a year earlier, due to goodwill impairment charges related to its home care unit, CareCentrix, and equity investments in China. Excluding these items and other one-time charges, the company earned 39 cents per share, surpassing analysts’ expectations of 36 cents, according to data from LSEG.
Looking ahead to fiscal 2025, Walgreens projected adjusted earnings of $1.40 to $1.80 per share, compared to analyst estimates of $1.73.
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