Walgreens Plans Major Overhaul with Potential Store Closures

the staff of the Ridgewood blog

Wyckoff NJ, Walgreens is finalizing a comprehensive plan to revamp its U.S. operations, which may include the closure of hundreds of additional stores over the next three years. CEO Tim Wentworth announced to analysts on Thursday that “changes are imminent” for approximately 25% of the company’s stores, identifying them as underperforming. Currently, Walgreens operates over 8,600 stores across the United States, 254 locations in New Jersey and at least a dozen locations in Bergen County including, Wyckoff, Ramsey, Waldwick, Teaneck and Englewood .

Wentworth indicated that if performance does not improve, a significant portion of these roughly 2,100 underperforming stores could face closure. This move follows the closure of 2,000 locations over the past decade, as part of a broader strategy to streamline operations. Globally, Walgreens operates about 12,500 drugstores.

The Need for Change

“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,” said Wentworth. Walgreens, along with major competitors like CVS and Rite Aid — the latter currently undergoing a bankruptcy reorganization — has been grappling with various challenges. These include tight reimbursement rates for prescriptions and rising operational costs.

Additionally, competition from retail giants like Walmart, Amazon, and other discount retailers has intensified, particularly in non-pharmacy sales. As inflation rises, consumers become more price-conscious, often opting for lower-priced alternatives found at these competitors.

“Our customers have become increasingly selective and price-sensitive in their purchases,” noted Wentworth, who has been reviewing the company’s business strategies since joining last fall.

Adjusting Health Care Strategies

Walgreens has also been closing VillageMD primary care clinics, which were previously installed next to its stores to expand its healthcare services. This initiative, launched under former CEO Rosalind Brewer, has been scaled back with approximately 160 clinics now closed. While primary care clinics typically incur losses in their initial years as they build a patient base, Wentworth assured that these clinics are now on a “clearer path to profitability.”

Financial Performance and Outlook

Despite efforts to adjust its business model, Walgreens Boots Alliance Inc. reported earnings that fell short of expectations and subsequently lowered its annual forecast. For its fiscal third quarter, the company earned $344 million, with adjusted earnings of 63 cents per share and revenue rising nearly 3% to $36.35 billion. However, analysts had anticipated earnings of 68 cents per share on $35.9 billion in revenue.

Walgreens now projects adjusted earnings for the fiscal year, ending in August, to range between $2.80 and $2.95 per share, down from its previous forecast of $3.20 to $3.35 per share. Analysts had expected $3.20 per share.

Market Reaction

The unexpected guidance cut and overall financial results led to a significant market reaction. Shares of Walgreens, based in Deerfield, Illinois, plunged 24% to $11.89 on Thursday morning, even as the S&P 500 index saw a slight rise. This year, Walgreens shares have already lost more than half their value.

Leerink Partners analyst Michael Cherny commented on the guidance cut, noting that it was “not overly shocking” as the company embarks on the next phase of its turnaround. However, the overall results did catch investors by surprise, reflecting the ongoing challenges and strategic shifts facing Walgreens.

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