PHARMA FAIL: Walgreens CEO plans $1 billion ‘turnaround’ cost-cutting plan and 1,200 stores are set to close
According to The Sun, Walgreens has announced significant changes to its business strategy, including the mass closure of 1,200 stores over the next three years. This decision comes as CEO Tim Wentworth aims to navigate the pharmacy chain through challenging market conditions.
Financial Performance and Cost-Cutting Measures
Recently, Walgreens narrowly exceeded Wall Street’s adjusted profit expectations for the fourth quarter. The company also forecasted fiscal-year earnings that were largely in line with analysts’ predictions, according to reports by Reuters. To streamline operations, Wentworth stated plans to lay off several mid-level executives and implement a $1 billion cost-cutting program.
Michael Cherny, an analyst at Leerink Partners, commented, “At first blush, (the forecast) looks better than worst-case scenario.” However, the closures indicate that by 2027, one in seven Walgreens locations will have shut down, with approximately 500 of these closures expected within the next year. Specific locations have yet to be disclosed.
Long-Term Vision
“This turnaround will take time, but we are confident it will yield significant financial and consumer benefits over the long term,” Wentworth said in a statement. Although the closures were initially announced in June, the exact number of affected stores was not revealed until now. As of August 31, 2023, Walgreens operated over 8,000 stores in the United States.
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In its fourth quarter of fiscal year 2024, Walgreens reported impairment charges related to its home care provider CareCentrix and an equity investment in China.
Impact of Market Conditions
The announcement of the store closures follows a sharp decline in Walgreens’ stock, which fell by more than 14% after the company released its third-quarter financial results in June. The retailer has been compelled to revise its profit outlook amid a “challenging” pharmaceutical industry and a “worse-than-expected U.S. consumer environment.”
“We continue to face a difficult operating environment, including persistent pressures on the U.S. consumer and the impact of recent marketplace dynamics that have eroded pharmacy margins,” Wentworth noted in the report. “Our results and outlook reflect these headwinds.”
Changes to Healthcare Strategy
In an effort to compete with CVS, Walgreens previously increased its focus on primary care services. In October 2021, the company announced a $5.2 billion investment in primary care provider VillageMD, aiming to transform itself into a healthcare provider by incorporating doctors’ offices within its drugstores.
“This turnaround will take time, but we are confident it will yield significant financial and consumer benefits over the long term”
Tim Wentworth
However, the strategy faced setbacks, as Walgreens abruptly closed all its VillageMD clinics in Florida in February. Wentworth later revealed that Walgreens would reduce its stake in VillageMD and no longer maintain majority ownership. “We recognize where we are is a turnaround,” he stated earlier this year. “We need to focus on the parts of the business that we believe are contributing and have a future, and some of those need to change.”
