Walgreens Boots Alliance aims to find $1 billion in savings as it seeks to shore up its finances while sustaining its continued expansion into healthcare services, executives said Thursday.
Most of the cuts will come from U.S. retail pharmacy operations. Walgreens is scrutinizing its expenses "line by line," closing stores or adjusting opening hours, reviewing its contract work obligations and shuttering all projects deemed non-essential, interim CEO Ginger Graham told analysts as the company announced its financial results for the fourth quarter and the full fiscal year ended Aug. 31.
"We believe the fundamentals of our core business remain strong," Graham said.
Interim Chief Financial Officer Manmohan Mahajan said he expects fiscal 2024 to bring continued challenges, stemming from a slowdown in respiratory illnesses such as COVID-19 and changes in consumer spending in a difficult economic environment.
Capital spending peaked at $2.1 billion last year, and the company wants to return to its former spending levels, Mahajan said. Walgreens plans to reduce those expenses by about $600 million. The company is pausing further expansions of its regional micro-fulfillment centers after opening an 11th center just weeks ago. All capital projects are being reviewed and must be approved by senior leaders, Graham said.
Walgreens' pivot to healthcare services remains under scrutiny, as that segment reported $294 million in operating losses during the fourth quarter, bringing fiscal year losses to $1.73 billion.
"While we have made progress on the build-out of our healthcare business, we are not satisfied with the near-term returns on our investments," said John Driscoll, president of U.S. healthcare. "We will continue to grow in 2024, but with a renewed focus on more profitable growth."
Walgreens expects most profits from the healthcare segment will come from primary care providers VillageMD and recently acquired Summit Health-CityMD. The company will increase density in its best-performing markets, exit five lower-performing areas and close about 60 clinics to right-size its footprint next year, Driscoll said.
The company also sees growth opportunities in its other healthcare businesses, Driscoll said. Pro-forma sales grew 24% at home health subsidiary CareCentrix and 29% at specialty pharmacy provider Shields Health Solutions in the fourth quarter. Walgreens also inked a deal with Pearl Health last month to expand value-based care services for clinicians.
On Tuesday, Walgreens announced that former Cigna executive Tim Wentworth will take over as CEO on Oct. 23. Former CEO Rosalind Brewer stepped down last month as the company sought leaders with more healthcare experience. Walgreens is also looking for a permanent chief financial officer and chief information officer.
Walgreens reported a net loss of $180 million, or 21 cents per diluted share, in the fourth quarter, improving from a $415 million net loss in the year-ago period. The company recorded a $3.08 billion, or $3.57 per diluted share, net loss for fiscal 2023, compared with a $4.34 billion gain for the previous fiscal year. Walgreens shares opened at $23.70 on the Nasdaq Stock Market Thursday, up nearly 5% from the closing price on Wednesday.