Walgreens Boots Alliance (WBA), one of the largest retail pharmacy chains in the U.S., has decided to close 1,200 stores over the next three years.
This move comes amidst increasing pressure from online prescription delivery services and shifting retail dynamics. The closures aim to streamline operations and focus on profitability, a strategy the company believes will bolster long-term growth.
CEO Tim Wentworth addressed this significant decision during the company’s fiscal fourth-quarter earnings call, outlining the “footprint optimization” plan, which involves strategically closing underperforming stores.
Why the Store Closures?
The rise of online prescription delivery platforms has presented a significant challenge to traditional retail pharmacies like Walgreens. As more consumers opt for the convenience of digital services, brick-and-mortar stores have seen a decline in foot traffic and revenue. Additionally, Walgreens has been grappling with internal cost-cutting measures, and these closures are seen as a critical step to stabilize the company’s financial performance.
Tim Wentworth mentioned that the stores targeted for closure have negative cash flows and are underperforming. These stores are primarily located in areas where Walgreens either owns the properties or is nearing the end of lease agreements. Closing these stores will reduce operational costs and help focus resources on more profitable locations.
Impact on Employees
Walgreens currently employs around 300,000 workers globally. While the company has already implemented some workforce reductions, Wentworth stated that the focus now is on “right-sizing” its retail operations rather than further layoffs.
Walgreens intends to redeploy employees from the affected locations to other stores, limiting the negative impact on its workforce.
Investor Sentiment and Market Reaction
Investors were well-received by Walgreens’ announcement of store closures, as Walgreens’ stock surged by over 12% following the earnings call. Investors view this move as a positive sign of fiscal responsibility and a necessary step toward securing the company’s future in an evolving market.
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Financial Performance in 2024
Walgreens reported a mixed performance for the fiscal fourth quarter of 2024. The company recorded a loss per share of $3.48 compared to $0.21 in the same period last year.
However, revenues rose by 6% year-over-year to $37.5 billion. Despite the losses, these revenue figures highlight the potential for growth in the core pharmacy and healthcare services businesses.
Mary Langowski, Walgreens’ president of U.S. Healthcare, emphasized that the current focus is on building long-term shareholder value by growing the company’s core lines of business. This includes pharmacy services, specialty pharmacy, and healthcare delivery.
| Key Financial Metrics | Q4 2024 | Q4 2023 |
|---|---|---|
| Loss per share | $3.48 | $0.21 |
| Revenue | $37.5 billion | $35.4 billion |
Prescription Reimbursements and Future Outlook
In addition to closing stores, Walgreens is also fighting for fairer prescription reimbursements from Pharmacy Benefit Managers (PBMs), which play a key role in determining pharmacy profits.
Wentworth stated that Walgreens had made significant progress in these negotiations, and by fiscal 2025, the company expects more favourable terms that will improve profitability.
Moving forward, Walgreens’ strategy will focus on optimizing its retail footprint, maintaining its core pharmacy business, and leveraging digital platforms for growth. The retail pharmacy industry is transforming, and Walgreens is positioning itself to adapt to these changes.
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Disclaimer
The information provided in this article is based on company announcements and stock market reports as of October 2024. For the latest updates on Walgreens, please visit the company’s official website or consult a financial advisor.
