Walgreens Boots Alliance Inc. is poised to implement a substantial restructuring of its U.S. operations, potentially closing of hundreds of stores over the next three years.
CEO Tim Wentworth disclosed that approximately 25% of the company’s 8,600 U.S. locations are underperforming and subject to changes, including possible closures if their performance doesn’t improve.
This strategic shift comes amid a challenging landscape for major pharmacy chains, including CVS and Rite Aid, as they grapple with tight prescription reimbursements, escalating operational costs, intensifying competition from discount retailers like Walmart and Amazon, and increased shoplifting.
Wentworth, who joined Walgreens last fall, emphasized the unsustainability of the current pharmacy model and a different market approach. This reevaluation extends to the company’s recent foray into primary care clinics, with Walgreens reversing its aggressive expansion of VillageMD clinics and closing approximately 160 locations. These clinics are now reported to be on a “clearer path to profitability.”
The company is also engaging in negotiations with pharmacy benefit managers over compensation and is focusing on growing other business segments, such as specialty pharmacy services for patients with complex or chronic conditions.
Financially, Walgreens reported disappointing third-quarter results, missing earnings expectations and revising its annual forecast downward. The company now projects adjusted earnings between $2.80 and $2.95 per share for the fiscal year ending in August, a significant reduction from its previous guidance of $3.20 to $3.35 per share.
This underwhelming performance has had a profound impact on Walgreens’ stock, which plummeted 24% following the announcement, exacerbating a year-to-date decline of over 50%.