Walgreens announced on Thursday its plans to close a significant number of its 8,700 stores in the United States. This decision comes as its parent company, Walgreens Boots Alliance, revised its profit forecast for fiscal year 2024 downward, citing weak consumer spending that has negatively impacted its retail operations.
The news led to a sharp decline in Walgreens’ stock, which fell by more than 15 percent in premarket trading. This adds to a year-to-date decline of 40 percent, reflecting investors’ concerns about the company’s financial health. The pharmacy chain did not provide specific details on the number of closures but indicated that a “significant multi-year” program was being finalized to shut down some of its stores. The review is focused on approximately 25 percent of its U.S. locations, with the potential closure of a “meaningful percent” of these underperforming stores, according to CEO Tim Wentworth in an interview with the Wall Street Journal.
The closures will target stores that are not profitable, those located too close to one another, and those struggling with issues such as theft. The exact locations of the stores to be closed have not yet been disclosed, and Walgreens has not responded to requests for further details.
Tim Wentworth, who assumed the role of CEO last October, is under pressure from investors to implement effective cost-saving strategies and steer the company back to profitability. Walgreens has been grappling with declining in-store demand as consumers reduce spending due to inflation and the waning demand for COVID-related products. Additionally, the company aims to streamline its healthcare portfolio in the U.S., which includes primary care provider VillageMD. Wentworth mentioned that Walgreens will no longer be the majority owner of VillageMD.
As part of its cost-cutting measures, Walgreens has already closed a significant number of stores. According to a regulatory filing, the company had shuttered 484 stores in the UK and 625 stores in the U.S. by February 2024.
The financial outlook for Walgreens has been adjusted in light of these challenges. The company now expects an adjusted profit of $2.80 to $2.95 per share for the fiscal year ending in August, down from the previous forecast of $3.20 to $3.35 per share made in March. Analysts, on average, had anticipated an annual profit of $3.20 per share, according to LSEG data.
In its most recent financial report, Walgreens reported adjusted earnings of 63 cents per share for the third quarter, falling short of the 68 cents per share that analysts had expected. This shortfall underscores the difficulties the company faces in meeting financial targets amidst a challenging retail environment.
The decision to close a significant number of stores is part of a broader effort by Walgreens to adapt to changing market conditions and improve its financial performance. By focusing on closing underperforming locations, Walgreens hopes to streamline its operations and allocate resources more effectively. However, this strategy also highlights the broader issues facing brick-and-mortar retail chains in an era where consumer behavior is increasingly shifting towards online shopping and digital services.
As Walgreens moves forward with its restructuring plans, the company will need to balance cost-cutting measures with the need to maintain a strong presence in key markets. The impact of these closures on employees, customers, and local communities will be closely watched, as will the company’s ability to execute its strategy effectively and return to a path of growth and profitability.
