Walgreens Boots Alliance Inc. slashed its guidance due to a worsening retail environment and announced it would close significantly more stores as its new chief executive officer seeks to turn the business around.
Walgreens said Thursday that in addition to the store closures, they would make more organizational changes, without specifying further job cuts. The company has had a rocky few years with turnover in the executive ranks amid a challenging retail climate.
Walgreens shares sank as much as 24% when markets opened in New York, their biggest one-day decline since at least 1980, according to data compiled by Bloomberg. CVS was also down as much as 5.6%.
The store closures will take place over the next three years, Chief Executive Officer Tim Wentworth said on a call with analysts. The total number is not finalized, he said, adding “we will update you in due course.”
Walgreens lowered its forecast range for full-year adjusted earnings to $2.80 to $2.95 per share, after lowering the top end of its guidance the prior quarter. Adjusted earnings for the three months ending May 31 were 63 cents a share, worse than the 68 cents that Wall Street analysts anticipated.
The company said it expects recent headwinds to persist into the next fiscal year, according to presentation slides posted ahead of management’s call with investors.
The Boots business saw quarterly sales of $5.7 billion, an increase of 2.8% from the year-ago period. The company had revived discussions last year about a potential exit from Boots but has since shelved plans for a possible initial public offering of Boots and is now exploring other options, Bloomberg reported, citing people with knowledge of the matter.
Operating income in the quarter was $111 million compared to a $477 million operating loss a year ago when the company took a $431 million writedown on its Boots business.
Like rival CVS Health Corp, Walgreens has been moving away from its retail roots and pushing deeper into more lucrative areas like primary care. The efforts have hit profits though, putting pressure on executives to execute a turnaround.
The shares lost half their value during the short tenure of Chief Executive Officer Roz Brewer. Under the current CEO Wentworth, who was appointed in 2023, the company has launched a review of the business aimed at increasing cash flow and growing more in health care. Late last year, the drugstore announced a $1 billion cost-cutting program, in part by closing unprofitable locations. On Thursday, management said they’re on track to meet that goal.
The US healthcare unit, which includes primary-care provider VillageMD, grew more than its traditional retail pharmacy division.
The healthcare segment posted revenue of $2.1 billion, an increase of 7.6% compared to the year-ago quarter. Walgreens has invested $5.2 billion in VillageMD, allowing it to open hundreds of doctors’ offices in its drugstores. It has since announced plans to close 160 of the clinics, and last quarter announced a $5.8 billion writedown related to the business.
The company’s US retail pharmacy unit posted revenue of $28.5 billion, an increase of 2.3% from the year-ago quarter.
(Updates with share move at market open. An earlier version of the story corrected the timing of the Boots impairment charge.)
© 2024 Bloomberg L.P.
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