Walgreens plans to close about 1,200 stores over the next three years as it tries to turn around its struggling U.S. business, which caused a quarterly loss of $3 billion.
Walgreens shares soared Tuesday after the company announced details of its plans and also reported better-than-expected quarterly results.
The company announced Tuesday that it plans to close about 500 stores this fiscal year and needs immediate revenue and free cash flow support. Walgreens did not say where the store closures would take place.
Company executives said the first wave of closures would occur primarily in the second half of the fiscal year, which began last month. Walgreens will prioritize underperforming stores where real estate is owned by the company or where leases are expiring.
Walgreens operates approximately 8,500 stores in the United States and thousands internationally. All of the stores closing are in the United States.
Chief Executive Officer Tim Wentworth told analysts on Tuesday that the majority of its stores, about 6,000, are profitable and provide the company with a foundation for growth.
“This strong foundation confirms our belief in a retail pharmacy-led model that is right for consumers, and we look forward to investing in these stores over the next few years,” said Wentworth, who took over as CEO about a year ago. I intend to do so.”
Walgreens Boots Alliance announced in late June that it was finalizing a restructuring plan in the U.S. that could lead to hundreds of store closures.
The plan announced Tuesday includes closing 300 stores approved in a previous cost-cutting plan.
Wentworth said that keeping Walgreens stores will allow the company to respond more quickly to changes in consumer behavior and purchasing patterns.
But Neil Saunders, managing director at GlobalData, a consulting and data analysis firm, said even Walgreens stores are doing well because of the challenges traditional drugstore chains face, including increasing pressure from online retailers and dollar stores. He said the country is not immune to a wide range of challenges.
“All of this can reduce store performance, and Walgreens needs to make sure that doesn’t happen,” Sanders said in an email. “Otherwise, these store closures will not be the last, and Walgreens will find itself in a dangerous spiral of ever-shrinking business.”
Walgreens, like its competitors, has long struggled with tight reimbursements for the prescriptions it sells and rising costs to operate its stores.
Rival CVS Health Corp. will close 900 stores. Another major chain, Rite Aid Corp., emerged from bankruptcy protection this year after cutting its store count to about 1,300.
Sanders said the latest round of closures will raise concerns about new pharmacy deserts emerging in parts of the country where people don’t have access to drugstores.
Walgreens is also backing away from plans to put primary care clinics next to some stores after aggressive expansion under former CEO Rosalind Brewer.
The Deerfield, Illinois-based company announced in August that it was reviewing its U.S. health care business and may sell all or part of its VillageMD clinic business. The announcement comes less than two years after the company said it would spend billions of dollars to expand its business.
The company began making acquisitions at the beginning of the year by cutting dividends paid to shareholders to raise cash. Six months later, the outlook for 2024 was revised downward.
Walgreens on Tuesday said its net loss ballooned to more than $3 billion in the final quarter of the year, led by U.S. retail and pharmacy sales. The company also recorded significant charges related to an opioid litigation settlement and an equity investment in China that the company recognized last quarter.
Adjusted earnings per share actually beat Wall Street expectations by 3 cents, and quarterly revenue of $35.75 billion easily beat analysts’ estimates by nearly $2 billion, according to FactSet.
But Walgreens has lost a whopping $8.64 billion this year, which equates to more than $10 a share for investors.
The company said Tuesday it expects adjusted earnings to range from $1.40 to $1.80 per share in the new fiscal year as growth in its U.S. healthcare and international businesses offset declines in U.S. retail pharmacy. did.
Analysts expect adjusted earnings of $1.72 per share in 2025.
Walgreens shares rose more than 13%, or $1.20, to $10.20 after the market opened on Tuesday.
The stock has fallen by nearly two-thirds since the beginning of the year, hitting $9 as of Monday’s close.
