(Bloomberg) -- Walgreens Boots Alliance Inc. plans to close 14% of its US stores to cut costs as consumers pull back spending.
The drugstore chain said Tuesday it will shutter around 1,200 outlets over the next three years, with 500 closures slated for 2025. The shares surged 14% at the open of trading in New York.
The company also issued profit guidance for 2025 that met Wall Street estimates.Adjusted earnings will be in the range of $1.40 to $1.80 a share in the year ending Aug. 31, 2025, Walgreens said Tuesday, in line with the $1.73 average estimate from analysts surveyed by Bloomberg.
Fourth-quarter earnings were $0.39 a share, beating analysts’ average estimate of $0.36 a share. The ailing drugstore chain beat analysts’ expectations — a sign that its aggressive cost-cutting measures are starting to pay off.
“The decisive decision to shutter a large cohort of underperforming stores is a positive in a narrative where the expectations are exceedingly low,” said Jonathan Palmer, an analyst with Bloomberg Intelligence. However, the larger question is how the closures ultimately improves the profitability of the US retail pharmacy segment and the timing of a turnaround, he said.
$3 Billion Loss
In the fourth quarter, the company also posted a $3 billion loss, which mostly included tax charges related to opioid liabilities and a write down of an investment in a Chinese pharmacy chain.
The company said in a filing that it would redeploy the majority of the workforce in stores that are closed.
Walgreens’ retail division has struggled as budget-conscious consumers turn to online retailers like Amazon.com and discount giants Dollar General and Costco. Competitive pressures led the Deerfield, Illinois-based company to lower full-year guidance for the second consecutive quarter in June and announce store closures, which caused its shares to plunge.
Walgreens’ US retail pharmacy unit posted fourth-quarter revenue of $29.5 billion, exceeding analysts’ expectations of $27.5 billion.
Headwinds in 2025
Chief Executive Officer Tim Wentworth had previously cautioned that he expects headwinds to persist into 2025. In a statement Tuesday, he said Walgreens is focused on optimizing its store footprint, controlling operating costs, improving cash flow, and addressing reimbursement models.
“This turnaround will take time, but we are confident it will yield significant financial and consumer benefits over the long term,” he said.
The US health-care unit, which includes VillageMD, reported revenue of $2.1 billion, in line with analysts’ estimates. Under former CEO Rosalind Brewer, Walgreens invested $5.2 billion in primary-care provider VillageMD, enabling it to open hundreds of doctors’ offices in its drugstores. This move aligns with the company’s broader strategy to shift away from its retail roots and expand into more lucrative areas of health care.
Walgreens’ international business generated sales of $6 billion, slightly above analysts’ expectations of $5.8 billion. While the company had revived discussions last year about potentially selling the Boots chain, it has since shelved plans for an initial public offering. Wentworth reaffirmed his commitment to investing in Boots and unlocking its potential.
(Updates shares.)
©2024 Bloomberg L.P.