Amid financial struggles and declining stock value, the pharmacy giant aims to revitalize operations with cost-cutting measures and store closures
Walgreens Boots Alliance (WBA.O) has announced plans to close 1,200 stores over the next three years as part of a comprehensive turnaround strategy under new CEO Tim Wentworth. This decision comes as the company grapples with weak consumer spending, increasing pressures from pharmacy benefit managers, and lower drug reimbursement rates, all of which have contributed to its recent financial struggles.
Despite these challenges, Walgreens managed to slightly exceed Wall Street’s expectations for its fourth-quarter adjusted profit, which boosted its shares by 12.3% to $10.11 in morning trading. However, the company’s stock has seen a significant decline of 65% year-to-date, making it the worst-performing stock on the S&P 500 index.
Store Closures and Cost-Cutting Initiatives
In his efforts to steer the company back on track, Wentworth has implemented a series of structural changes, including the removal of several mid-level executives and the introduction of a $1 billion cost-cutting initiative. The planned store closures, which will focus on underperforming locations and those with expiring leases, are expected to affect 500 stores by 2025. Walgreens currently operates more than 8,000 stores across the United States.
Chief Financial Officer Manmohan Mahajan elaborated on the closures, emphasizing that the company is targeting stores that are not generating positive cash flow. He also noted that while these measures may take time, they are part of a long-term plan designed to deliver significant financial and consumer benefits.
Financial Performance and Outlook
In its fiscal fourth quarter of 2024, Walgreens reported a $3 billion loss, compared to a $180 million loss during the same period last year. This larger deficit is largely attributed to goodwill impairment charges related to its home care unit, CareCentrix, and equity investments in China. However, excluding one-time charges, Walgreens earned 39 cents per share, surpassing analysts’ forecast of 36 cents, according to data from LSEG.
Looking ahead to fiscal 2025, Walgreens has forecasted adjusted earnings of $1.40 to $1.80 per share, slightly below analysts’ estimates of $1.73. Despite these projections, analysts like Michael Cherny from Leerink Partners have pointed out that Walgreens continues to face macroeconomic headwinds, but Wentworth’s turnaround strategy appears to have a better-than-expected outlook.
Walgreens’ Path Forward
As Wentworth continues to reshape Walgreens’ operations, the company remains focused on addressing the evolving challenges of the pharmacy industry. Alongside store closures and cost-cutting measures, Walgreens will aim to regain financial stability and enhance its market position in the long run, with hopes that these efforts will position the company for future success in an increasingly competitive landscape.
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