Walgreens cuts profit view, looks to shut more stores on spending hit
FILE PHOTO: Pigeons are seen resting on signage for Walgreens, owned by the Walgreens Boots Alliance, Inc., in Manhattan, New York City, U.S., November 26, 2021. REUTERS/Andrew Kelly/File Photo
By Bhanvi Satija and Sneha S K
(Reuters) -Walgreens Boots Alliance cut its profit forecast for fiscal 2024 and said it would close more underperforming U.S. stores as weak consumer spending hurts retail operations, dragging its shares down 25% on Thursday.
Without specifying the number of closures, the pharmacy chain operator said it was finalizing a "significant multi-year" program to close some of its more than 8,700 stores and that the firm's review was focused on a quarter of its U.S. locations.
CEO Tim Wentworth, who came on board last October, has set in motion a complete overhaul at Walgreens through store closures, the removal of multiple mid-level executives and a $1 billion cost-cutting plan.
The drugstore operator also halved its dividend to 25 cents per share earlier this year in an attempt to conserve cash as sticky inflation dampens spending on over-the-counter products and reimbursement payments for filling prescriptions come under pressure.
"The results this morning were just absolutely terrible. I mean, it's kind of been the theme over the last three to eight earnings reports to be brutally honest," said David Wagner, portfolio manager and equity analyst at Aptus Capital Advisors.
"They brought in new CEO Tim Wentworth and he has a good history on the healthcare services side", but investors are focused on his next steps, said Wagner, whose firm owns 241,583 Walgreens shares through a unit.
The company expects these challenges to persist into fiscal 2025 and is open to reviewing more store closures.
"We have a really strong level of conviction around the core business (retail pharmacy) that we are remodeling here" and the changes will take a few "quarters ... and not necessarily multiple years", Wentworth said.
Walgreens will also simplify its U.S. healthcare portfolio that includes primary care provider VillageMD. Wentworth told the Wall Street Journal that the company will no longer be VillageMD's majority owner.
It will, however, continue investing in its Boots UK and Shields pharmacy businesses.
As of February, Walgreens had closed 484 stores in the UK and 625 stores in the U.S., according to a regulatory filing.
The company forecast an annual adjusted profit of $2.80 to $2.95 per share, lower than its earlier estimate of $3.20 to $3.35. Analysts expect $3.20 per share, according to LSEG data.
The forecast cut weighed on shares of rival CVS Health and drug distributor Cencora, in which Walgreens holds a stake, sending them 4% lower.
(Reporting by Bhanvi Satija, Christy Santhosh and Sneha S K in Bengaluru; Editing by Devika Syamnath)