Walgreens Stock Sinks 22% on Plan to Close Stores, Cut to Financial Guidance
Walgreens Boots Alliance unveiled plans that could lead to the closure of thousands of its U.S. pharmacies as challenges mount up for the company’s retail business.
The stock was down 22% Thursday, deepening a year-to-date nosedive of 40% as of the close of trading on Wednesday.
“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 Wentworth told investors.
Retail pharmacy chains like Walgreens have faced years of challenges, as Barron’s reported earlier this year, as the reimbursement rates they receive from pharmacy-benefit managers to pay them for the prescription drugs they sell have plummeted.
On a Thursday call to discuss its quarterly results with investors, Wentworth said that a quarter of its U.S. retail stores don’t contribute to the segment’s adjusted operating income, and that the company will close a “significant portion of these underperforming stores.”
Walgreens had just over 8,700 U.S. retail locations at the end of its 2023 fiscal year. That puts more than 2,100 Walgreens locations at risk of closure.
Wentworth said Walgreens will work to make the “underperforming” stores that it doesn’t close profitable. “We will contemplate additional closures if performance does not improve,” he said.
Walgreens cut its full-year financial guidance, saying it expects fiscal 2024 earnings of $2.80 a share to $2.95 a share, down from previous expectations of $3.20 a share to $3.35 a share. Analysts surveyed by FactSet have been expecting a full-year profit of $3.21 a share.
The company reported fiscal third-quarter adjusted earnings of 63 cents a share from sales of $36.4 billion. Analysts surveyed by FactSet were expecting earnings of 68 cents a share on sales of $35.9 billion.
“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,” Wentworth said in a statement. “Our results and outlook reflect these headwinds, despite solid performance in both our International and U.S. Healthcare segments.”
Adjusted operating income for the company’s troubled U.S. retail pharmacy segment was $501 million in the quarter, down from $962 million for the same quarter last year, even though sales for the segment rose from $27.9 billion to $28.5 billion.
Walgreens said that over the first nine months of its 2024 fiscal year, its operating loss has been $13.1 billion, up from $6.4 billion in the same period in 2023. That includes a $5.8 billion noncash goodwill impairment charge related to VillageMD, the primary-care chain it owns.
Adjusted operating income for Walgreen’s U.S. retail pharmacy business fell from $5.4 billion in the company’s 2016 fiscal year to $3.7 billion in its 2023 fiscal year, which ended last August. That is a 31% drop.
Write to Angela Palumbo at [email protected]