Walgreens Boots Alliance (WBA) has cut its profit forecast for fiscal 2024 and plans to close “a significant number of underperforming stores,” CEO Tim Wentworth told analysts on a call for the company’s fiscal 2024 Q3 earnings period, which ended May 31, 2024.
While Wentworth didn’t specify the number of Walgreens’ 8,600+ U.S. stores that will be affected, he did say on the call that “currently, 75% of our U.S. stores contribute roughly 100% of segment AOI [adjusted operating income]. For the remaining 25% of the stores in our network, which are not currently contributing to our long-term strategy, changes are imminent.”
As of May 31, Walgreens already has closed 581 stores in the UK and 673 stores in the U.S., according to a regulatory filing.
“We are at a point where the current pharmacy model is not sustainable and the challenges in our operating environment require that we approach the market differently,” said Wentworth, who joined the company last October to lead a turnaround. “Since launching our strategic and operational review at the beginning of the calendar year, we have been clear-eyed on what we’re trying to achieve, and everything has been on the table.”
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Third quarter sales at WBA increased 2.6% year-over-year to $36.4 billion, while sales in the first nine months of fiscal 2024 increased 6.2% from the year-ago period to $110.1 billion. However, operating loss in the first nine months of fiscal 2024 was $13.1 billion compared to an operating loss of $6.4 billion in the year-ago period, an increase of $6.7 billion the reflects the ongoing challenges the business faces.
Navigating ‘Persistent Pressures’
Wentworth pointed to “persistent pressures on the U.S. consumer and the impact of recent marketplace dynamics which have eroded pharmacy margins. Our results and outlook reflect these headwinds, despite solid performance in both our international and U.S. health care segments,” he said. “Informed by our strategic review, we are focused on improving our core business: retail pharmacy, which is central to the future of health care.”
In addition to the store closures, Wentworth outlined a series of actions the company would take, including:
- A reevaluation of its product assortment that will include working with “fewer partners who are helping us win. For example, in the last quarter alone, we’ve removed eight national brands and redeployed those SKUs toward owned brands and preferred partners within health and wellness categories”;
- “Changing the dialogue” with pharmacy benefits managers (PBMs) “to ensure we are paid fairly for the value we provide”;
- Enhancing pharmacy services such as immunizations in an effort to attract more patients;
- Identifying efficiencies at headquarters and across its retail operations, which will include a restructuring;
- Plans to “meaningfully build” the company’s loyalty program;
- Investing more in talent, particularly pharmacy industry professionals;
- Sharpening its focus on becoming a “destination for areas we are uniquely positioned to lead” such as health and beauty and women’s health; and
- An acceleration of digital and omnichannel offerings.
“I want to reinforce the most important conclusion from our review — the retail pharmacy experience will be more important to the health care industry in the years ahead, but it will evolve,” said Wentworth. “With widespread demand for convenient health care solutions, including chronic diseases and nationwide labor shortages, the pharmacy and pharmacists have never been more important. Our retail pharmacy business is uniquely positioned to expand the role we play in the lives of our patients who have come to expect and need retail pharmacy at the center of their care.”
