Walgreens Boots Alliance announced plans to close a significant number of its underperforming U.S. stores over the next three years, as revealed during an investor earnings call on June 27.
This decision comes amid financial challenges and an evolving retail pharmacy landscape which the company outlined in the call regarding the company’s third-quarter 2024 earnings.
Tim Wentworth, the company’s CEO, highlighted the company’s commitment to navigating these tough times by focusing on its core strengths and making strategic adjustments in the call.
“While this quarter’s results were not in line with our expectations,” he said, “I’m at Walgreens today because I believe in the future of retail pharmacy, and particularly in our future. We are motivated by the trust Americans place every day in their Walgreens pharmacy, and the experience we provide them in our stores and with our digital offerings is important in their lives.”
Mr. Wentworth attributed some of the company’s struggles with the state of the U.S. economy.
“Despite easing comparisons, we do not anticipate significant improvement in the U.S. consumer spending backdrop,” he said in the call. “We are especially seeing signs of strain on the lower-income consumer driven by accumulated inflation and depleted savings.”
The company has approximately 8,600 U.S. stores and approximately 12,500 international locations, with more than 330,000 employees worldwide. Mr. Wentworth took over as CEO of the company in October 2023.
Strategic Review Troubling
A strategic review conducted by Walgreens identified that 75 percent of its U.S. stores contribute nearly 100 percent of the segment’s adjusted operating income.The remaining 25 percent of the stores are up for closure. This move aims to optimize the store footprint and enhance overall efficiency.
“In light of the current challenges, we are finalizing a multi-factor store footprint optimization program, which we expect will include the closure of a significant portion of these underperforming stores over the next three years,” Mr. Wentworth said in the call joined by The Epoch Times.
The company plans to redeploy the majority of the workforce from these closing stores to minimize customer disruptions.
“We have been clear-eyed on what we’re trying to achieve, and everything has been on the table.”
The company’s adjusted earnings per share for the third quarter stood at $0.63, significantly lower than anticipated.
The decrease was attributed to various factors, including a challenging consumer environment and unfavorable trends in the pharmacy industry. As a result, Walgreens revised its full-year earnings per share outlook to a range of $2.80 to $2.95.
The company told investors they are taking several measures to improve its operational efficiency and customer experience.
Walgreens is focusing on working with fewer, more strategic partners and increasing its own brand penetration. The company also aims to meet customers’ needs through improved digital solutions and same-day delivery services.
Meanwhile, the company will be advancing its pharmacy services, including immunizations, to attract more patients.
Financial and Operational Challenges
The earnings call also highlighted ongoing financial pressures. U.S. retail pharmacy sales grew by 2.3 percent, while international sales increased by 1.6 percent.However, adjusted earnings per share decreased by 37 percent year over year on a constant currency basis, driven by lower sale-leaseback gains and a challenging retail environment.
The U.S. health care segment, though, showed promise with an 8 percent sales increase and a second consecutive quarter of positive adjusted earnings before interest, taxes, depreciation, and amortization.
The company forecasts it is on track to deliver $1 billion in cost savings this year and continues to focus on long-term shareholder value.
Looking ahead to fiscal 2025, Walgreens expects continued growth in its U.S. health care and international segments.
However, the retail pharmacy environment is anticipated to remain challenging amid consumer pressures.
“The bottom line is that I’m confident [Walgreens] will be a leader in the future of health care, with pharmacy and retail at its center, and the long-term potential of the company will be shaped by offerings built around the relationship that we’ve nurtured with our customers over time,” Mr. Wentworth said in the call.
What It Means
The announcement has significant implications for both consumers and employees, Dominick Miserandino retail consultant firm RetailWire told The Epoch Times in an interview.“The closure of pharmacies hits hard on both fronts,” Mr. Miserandino said. “For consumers, especially in those areas losing their local pharmacy, it means longer trips and more inconvenience to get their essential prescriptions and health services. Employees, on the other hand, are left in a tough spot, worrying about their jobs and what’s next for them in an already challenging job market. This might be the only pharmacy in the area for consumers and the only job for employees in some communities.”
Low-income residents are likely to face the most severe consequences of these closures, he said.
“Longer trips mean more time and expense, not to mention the potential health risks if they can’t get their medications on time. It’s a serious problem that can lead to worse outcomes and widen the gap in access to health care,” Mr. Miserandino said.
Mr. Miserandino noted that Walgreens is not alone in facing these difficulties. “The pharmacy industry is grappling with rising costs and regulatory changes, leading some chains to shutter stores to mitigate losses or strategically reposition themselves in a competitive market.”
When asked about the role of theft and the reluctance of legal authorities to prosecute, Mr. Miserandino acknowledged that theft is a factor, but not the sole reason for the store closures.
Bill Read, executive vice president of retail specialists, echoed some of those concerns in an interview with The Epoch Times, but offered some reassurance.
“People need their medicines, and when a pharmacy closes, it causes some disruption. The good news is that in most markets there are multiple competitors happy to fill the void. Publix, Walmart, and many others offer pharmacy services,” he said.
Mr. Read added, “When a pharmacy closes a location, generally it’s good for the other pharmacies that pick up their business. In general, many people don’t like change, but they will have alternatives if a drug store closes near them.”
Mr. Read also cited recent industry struggles such as Rite Aid filing bankruptcy and closing hundreds of locations.
“As a whole, the drugstore business is under tremendous pressure,” he said. “Many of these drugstore chains over-expanded and do not realize that they need to right-size their store fleet in order to remain profitable.”
Steve Beaman, founding partner of the law office of Beaman & Bennington, told The Epoch Times that these closures “often happen in areas prone to crime, leaving local residents without the goods and services they need.”
The closures might present opportunities for other pharmacy chains such as Rite-Aid and CVS. However, Mr. Beaman noted that “depending on the areas, those stores too are subject to crime costing too much.”
The challenges faced by Walgreens are not unique within the retail sector. “Like many retailers, rising costs, internet sales, and rising crime are causing them to explore other ways to serve consumers,” Mr. Beaman said.
