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.
The company said Tuesday that about 500 store closures will come in the current fiscal year and should immediately support adjusted earnings and free cash flow. Walgreens didn’t say where the store closings would take place.
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.
Walgreens Boots Alliance Inc. leaders said in late June that they were finalizing a turnaround plan for its U.S. business, and that push could result in the closing of hundreds of underperforming stores.
The plan announced Tuesday includes the closing of 300 stores that had been approved under a previous cost-cutting plan.
Walgreens CEO Tim Wentworth said in a statement that fiscal 2025, which began last month, will be an important “rebasing year” for the drugstore chain.
“This turnaround will take time, but we are confident it will yield significant financial and consumer benefits over the long term,” he said.
Walgreens, like its competitors, has been struggling for years with tight reimbursement for the prescriptions it sells as well as other challenges like rising costs to operate its stores. Plus drugstore chains have been dealing with more competition from online retail giant Amazon and Walmart and Target.
Rival CVS Health Corp. is wrapping up a three-year plan to close 900 stores. Another major chain, Rite Aid Corp., emerged from a bankruptcy reorganization earlier this year after whittling its store count down to about 1,300 locations.
Walgreens also has been backing away from a plan to add primary care clinics next to some if its stores after launching 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 the business.
The company started 2024 by cutting the dividend it pays shareholders to get more cash to grow its business. The drugstore chain then slashed its forecast for fiscal 2024 in June.
Walgreens said Tuesday that its net loss swelled to more than $3 billion in the final quarter of 2024. The company said a softer U.S. retail and pharmacy performance hurt. It also booked some hefty charges tied to opioid litigation settlements the company had recognized in previous quarters and an equity investment in China.
The performance topped Wall Street expectations. Analysts expect, on average, earnings of 36 cents per share on $35.75 billion in revenue in the fiscal fourth quarter, according to FactSet.
The company also said it 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.
Leerink Partners analyst Michael Cherny said in a research note the company’s fourth-quarter performance and 2025 forecast were not as bad as they could have been. But the information released Tuesday “does not answer any of the big questions surrounding the (Walgreens Boots Alliance) story and the improved operating path forward under still new CEO Tim Wentworth.”
Walgreens shares rose almost 4% Tuesday before the opening bell.
The stock had shed nearly two thirds of their value so far this year, falling to $9 as of Monday’s close.
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Originally Published:
American drug retailer giant, Walgreens, has announced plans to close approximately 1,200 stores in the United States as it embarks on a mission to steady operations after a tumultuous financial period. The decision is part of a restructuring strategy intended to address financial challenges and improve the company’s economic status.
Founded in 1901, Walgreens has been a crucial player in the American drugstore landscape for over a century. However, much like many other retail companies, it has not been immune to the economic disruptions caused by the digital revolution and changing consumer behavior, which have been further intensified by the COVID-19 pandemic.
The announcement of the closures, which are expected to be executed within the next three years, is a significant development from the Deerfield, Illinois-based company. The company has indicated that this action aims to capitalize on the best opportunities in their business, strengthen their competitive positioning, and enhance their operational efficiency.
The closings will amount to nearly 10 percent of Walgreens’ approximately 9,000 locations across the US. The company has said that it will also perform a comprehensive review of other elements of its operations such as organizational structures and roles. The aim is to have lean operations that can deliver improved productivity and increased profitability.
The news of the closures comes after Walgreens reported weaker than expected third-quarter sales. The company attributed the poor performance to the challenges brought by the pandemic and increased competition in the retail drugstore industry. Online shopping and home delivery services are rapidly gaining traction, putting immense pressure on traditional brick-and-mortar stores.
Despite the closures, Walgreens assured that the reduction in their physical network would not heavily affect their pharmacy reach. The company plans to refocus its resources on maximizing the efficiency and potential of its remaining stores by integrating digital solutions and offering tailored patient experiences.
Furthermore, the company stated that it will put in place a comprehensive and well-structured redundancy program, including reemployment support, for all employees affected by the closures.
Walgreen’s strategy to boost profitability through significant store closures mirrors that of other major retailers who have adopted a similar approach to mitigate the financial challenges brought about by e-commerce and the pandemic.
It is indeed a challenging time for the retail industry. As business models evolve, companies must stay agile, adapt to the changing shopping habits of consumers, and embrace digital transformation to stay resilient in the post-pandemic world.
In conclusion, the decision by Walgreens to close 1,200 of its U.S stores signifies a substantial shift in strategy as they seek to adapt to the evolving retail environment. While it is painful in the short term, if executed correctly, the move could potentially ensure the longevity and profitability of the venerable pharmacy chain in the long run.
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Walgreens to close 1,200 US stores as chain attempts to steady operations
