Walgreens plans 'significant' store closings; cuts profit guidance in Q3
Walgreens Boots Alliance is evaluating stores for closure and adjusting its earnings outlook downward in the third quarter of fiscal 2024.
Walgreens said in its earnings release that it is finalizing a "significant multiyear footprint optimization program" to close certain underperforming U.S. stores.
“We are at a point where the current pharmacy model is not sustainable and the challenges in our operating environment require we approach the market differently,” CEO Tim Wentwoth said on the chain's earnings call.
Walgreens said the store closures would take place during the next three years. The company also said it would consider additional closures if performance doesn’t improve.
The pharmacy retailer and health care services company reported net earnings of $344 million, almost triple $118 million in the same quarter a year earlier. However, adjusted net earnings dropped 36.5% to $545 million due to lower adjusted operating income.
Walgreens is cutting its earnings guidance for fiscal 2024 to $2.80 to $2.95 from $3.20 to $3.35.
"We continue to face a difficult operating environment, including persistent pressures on the U.S. consumer and the impact of recent marketplace dynamics which have eroded pharmacy margins," stated Wentworth in the earnings release.
In commentary to CNBC, Wentworth said U.S. consumers are "stunned" by and resistant to current prices, even though some costs are no longer rising due to inflation.
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.
Third quarter sales increased 2.6% year-over-year to $36.4 billion, up 2.5% on a constant currency basis from $35.41 billion. Sales at Walgreens’ U.S. health-care division rose roughly 1% year-over-year to $2.12 billion from $1.97 billion. Sales in the U.S. retail pharmacy segments grew 2% to $28.5 billion from $27.9 billion.
The company’s international segment posted sales of $5.72 billion, up 2.7% from $5.57 billion in the year-ago quarter. Boots UK comparable pharmacy sales increased 5.8% on a constant currency basis compared with the year-ago quarter.
Boots UK comparable retail sales increased 6% on a constant currency basis compared to the year-ago quarter with growth across all categories, and increased total retail market share. Boots.com continued to perform strongly with sales growing 13.8%, representing 15.6% of Boots total retail sales.
Headquartered in Deerfield, Ill., Walgreens Boots Alliance operates approximately 12,500 locations across the U.S., Europe and Latin America.