Walgreens to close 1,200 stores, including 500 in FY25; beats Street
Walgreens Boots Alliance exceeded analyst expectations in the fourth quarter of fiscal 2024 but still plans on shuttering roughly 15% of its U.S. store locations.
The drugstore giant, which previously said it was finalizing a "significant multiyear footprint optimization program" and cut its profit guidance in its third quarter earnings announcement, plans to close 1,200 U.S. stores by the end of fiscal 2027, including 500 by the end of fiscal 2025.
Walgreens expects trimming what it mostly considers underperforming stores from its U.S. store fleet of roughly 8,700 locations will be immediately accretive to its adjusted earnings and free cash flow. In an earnings call, Walgreens CEO Tim Wentworth said the company will wind up with a healthier store base and be able to better respond to shifting consumer behaviors and preferences.
Wentworth also said Walgreens will still employ a "majority" of employees who work at stores that get closed. In October 2023, Walgreens said it planned to close 60 underperforming VillageMD clinics and exit five markets as part of a comprehensive $1 billion cost-saving strategy.
As of March 26, VillageMD said it exited 140 locations, with plans to close about 160 clinics in total, reported Forbes. In other recent steps in a larger strategy to turn around its U.S. business, Walgreens sold shares in the drug distributor, Cencora, formerly known as AmerisourceBergen, for proceeds of about $1.1 billion.
With the transaction, Walgreens’ stake in Cencora decreased to about 10% from approximately 12%. The retailer said proceeds from the share sale will be used primarily for debt pay down and general corporate purposes as its continues to build out a more capital-efficient health services strategy rooted in its retail pharmacy footprint.
[READ MORE: Walgreens' latest stock sale raises about $1.1 billion]
Walgreens exceeds financial expectations
Walgreens surpassed analyst predictions for its fourth quarter revenue and adjusted earnings. Fourth quarter sales increased 6% year-over-year from $35.42 billion to $37.5 billion, reflecting sales growth across all segments.
Adjusted earnings per share totaled 39 cents, compared to Wall Street projects of 36 cents per share. Adjusted net earnings decreased 41% to $340 million, reflecting lower adjusted operating income.
Net loss for the quarter rose to $3 billion compared to $180 million in the fourth quarter of fiscal 2023, which Walgreens said was primarily driven by a higher operating loss, a $2.3 billion non-cash charge for valuation allowance on deferred tax assets primarily related to opioid liabilities recognized in prior periods, and a non-cash impairment charge related to equity investment in China.
Loss per share was $3.48, compared to a loss per share of $0.21 in the year-ago quarter.
For the full fiscal year 2024, sales rose 6.2% year-over-year to $147.7 billion from $139.1 billion, an increase of 6.2% from the year-ago period, reflecting what Walgreens termed sales growth across all segments.
Net loss in fiscal 2024 was $8.6 billion, an increase of 180.4% compared to $3.08 billion the year-ago period, primarily driven by a higher operating loss, a $2.2 billion non-cash charge for valuation allowance on certain deferred tax assets and a $717 million after-tax charge related to the monetization of Cencora shares.
Adjusted net earnings were $2.5 billion, a decrease of 28% primarily driven by lower adjusted operating income, partly offset by lower interest expense and a lower adjusted effective tax rate.
Loss per share for fiscal 2024 was $10.01, an increase of 180.4% compared to loss per share of $3.57 in the year-ago period. Adjusted earnings per share was $2.88, a decrease of 27.6%.
Looking ahead to fiscal 2025, Walgreens expects full-year sales of $147 to $151 billion and adjusted earnings per share of $1.40 to $1.80.
"Fiscal 2025 will be an important rebasing year as we advance our strategy to drive value creation," said Wentworth. "This turnaround will take time, but we are confident it will yield significant financial and consumer benefits over the long term. In fiscal 2025, we are focusing on stabilizing the retail pharmacy by optimizing our footprint, controlling operating costs, improving cash flow, and continuing to address reimbursement models to support dispensing margins and preserve patient access for the future."
Headquartered in Deerfield, Ill., Walgreens Boots Alliance operates approximately 12,500 locations across the U.S., Europe and Latin America.
