Authors: Bhanvi Satija and Sneha SK
(Reuters) – Walgreens Boots Alliance lowered its fiscal 2024 profit forecast and said it would close more unprofitable U.S. stores as low consumer spending weighs on its retail business, sending shares tumbling 25% on Thursday.
Without providing a specific number of closed locations, the pharmacy chain operator said it was finalizing a “significant multi-year” program to close some of its more than 8,700 locations, and the company’s review focused on a quarter of its U.S. locations.
CEO Tim Wentworth, who joined the board last October, has launched a complete overhaul of Walgreens with store closures, the removal of many middle management members and a $1 billion cost-cutting plan.
The drugstore operator also halved its dividend to 25 cents a share earlier this year in an attempt to conserve cash as persistent inflation reduces spending on over-the-counter products and payments for prescription fills come under pressure.
“The results this morning were just terrible. I mean, to be brutally honest, this has been a theme over the last three to eight earnings reports,” said David Wagner, portfolio manager and equity analyst at Aptus Capital Advisors.
“They hired a new CEO, Tim Wentworth, and he has a good history in the health care services industry,” but investors are focused on his next steps, said Wagner, whose company owns 241,583 shares of Walgreens stock through a unit.
The company expects these challenges to continue into fiscal year 2025 and is open to considering further store closures.
“We believe that our core business (retail pharmacies) requires modernization” and that the changes will take “several quarters… not necessarily many years,” Wentworth said.
Walgreens will also simplify its U.S. healthcare offering, which includes primary care provider VillageMD. Wentworth told the Wall Street Journal that the company will no longer be the majority owner of VillageMD.
However, it will continue to invest in its pharmacy companies Boots UK and Shields.
Walgreens closed 484 stores in the UK and 625 in the US in February, according to regulatory filings.
The company forecast full-year adjusted earnings per share of $2.80 to $2.95, down from its previous estimate of $3.20 to $3.35. Analysts expect earnings of $3.20 per share, according to LSEG data.
The forecast cut weighed on shares of rival CVS Health (NYSE:) and drug distributor Cencora, in which Walgreens has shares, causing their value to decline by 4%.
