Walgreens Announces Closure of 1,200 Stores by 2027 Amid Earnings Surge

Walgreens, a name synonymous with health and wellness, recently unveiled its fiscal fourth-quarter financials, surpassing Wall Street’s forecasts. The company announced a concerted effort to trim costs and enhance efficiency, signaling a strategic pivot designed to navigate through challenging economic waters.

The declaration of closing approximately 1,200 stores within the next three years marks a bold move by Walgreens. About 500 of these closures are slated for fiscal 2025, a decision aimed at streamlining operations and bolstering financial health. This decision is projected to be “immediately accretive” to the company’s adjusted earnings and free cash flow, illustrating Walgreens’ commitment to sustainable growth and profitability.

Currently, Walgreens boasts a vast network of about 8,700 locations across the U.S., yet faces the reality that a quarter of these branches are unprofitable. This revelation was followed by a significant uptick in the company’s shares, which soared approximately 8% in premarket trading, reflecting investor optimism in the wake of the announcement.

The fiscal year 2024 has indeed been a tumultuous journey for Walgreens, as it grapples with various pressures including pharmacy reimbursement challenges, a dip in consumer spending, and hurdles in its venture into primary care. However, the company has risen to the occasion by aggressively cutting costs, achieving its ambitious target of a $1 billion reduction during the fiscal year. This was accomplished through measures such as shuttering underperforming stores, workforce downsizing, and leveraging artificial intelligence to streamline its supply chain, amongst others.

In tune with its strategic recalibration, Walgreens had previously hinted at the closure of a “significant” number of stores by 2027, with the recent announcement providing a clearer picture of its ambitious restructuring plan.

As per the financial specifics for the quarter ending August 31:

Earnings per share stood at 39 cents adjusted, edging past the expectations of 36 cents. Revenue was reported at $37.55 billion, surpassing the anticipated $35.76 billion, a clear indicator of Walgreens’ robust sales performance amidst challenging times.

Indeed, the quarter painted a picture of resilience with sales climbing to $37.55 billion, marking a 6% increase from the preceding year. Despite wrestling with a net loss of $3 billion, or $3.48 per share—primarily due to valuation allowances related to opioid settlements—Walgreens showcased its capacity for fiscal discipline and operational excellence.

Contrasting the previous year’s net loss of $180 million, or 21 cents per share, the adjusted earnings of 39 cents per share for the recent quarter reflected Walgreens’ adept management and strategic initiatives in navigating fiscal complexities.

CEO Tim Wentworth, nearly a year into his leadership role, lauded the fourth-quarter and fiscal year outcomes as a testament to the company’s “disciplined execution on cost management, working capital initiatives, and capital expenditure reduction.”

Looking ahead, Walgreens set its sights on fiscal 2025 with a guidance range that aligns with analyst expectations. The company is optimistic about growth in its U.S. healthcare and international segments, notwithstanding a projected downturn in the retail pharmacy sector. Earnings per share are expected to oscillate between $1.40 and $1.80, with Wall Street’s forecast leaning towards an adjusted profit of $1.75 per share.

Sales projections for the forthcoming year hover between $147 billion to $151 billion, juxtaposed against analysts’ estimation of $147.3 billion. This underscores Walgreens’ ambition to not only meet but potentially exceed market expectations.

Amidst the fiscal dynamics, Walgreens reported a remarkable growth trajectory across its three primary business segments in the fiscal fourth quarter.

The U.S. healthcare unit witnessed sales soaring to $2.11 billion, a commendable 7.1% increment from the year prior. This came in slightly above analyst expectations, highlighting the segment’s robust performance, partly fueled by the expansion of primary care provider VillageMD and specialty pharmacy Shields Health Solutions— the latter witnessing a 27.8% surge in sales, attributed to flourishing partnerships.

The concept of specialty pharmacies, catering to patients with complex health conditions by providing medications that require specialized handling, has gained prominence. This is reflective of Walgreens’ strategic focus on niche markets within the healthcare domain.

An advert showcases COVID-19 vaccine availability at a Walgreens Pharmacy, underscoring the company’s commitment to public health amidst ongoing challenges. Photo credit: Brian Snyder | Reuters

Notably, the U.S. retail pharmacy segment generated $29.47 billion in sales for the quarter, marking a 6.5% increase from the corresponding period last year. This achievement exceeded analyst predictions, reaffirming the segment’s pivotal role in Walgreens’ overarching business model.

Conversely, the company’s international outreach via its network of over 3,000 retail stores abroad contributed $5.97 billion in sales for the quarter, evidencing a 3.2% uptick from the previous year. This includes notable performance by the U.K.-based drugstore chain, Boots, which saw a 2.3% increase in sales.