Walgreens woes continue with earnings miss, guidance cut and plans to shutter more stores
Walgreens is finalizing a plan to fix its business that could result in the closure of hundreds of additional stores in the next three years.
CEO Tim Wentworth told analysts Thursday morning that “changes are imminent” for about 25% of the company’s stores, which he said were underperforming. The drugstore chain currently runs more than 8,600 in the United States.
Wentworth said the company’s plan could include the closing of a “significant portion” of those 2,100 stores.
“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,” he said.
Walgreens shares tumbled early Thursday after the drugstore chain also said it missed earnings expectations for its third quarter and cut its annual forecast.
Walgreens and major competitors like CVS and Rite Aid — which is going through a bankruptcy reorganization — have already closed hundreds of stores over the past few years. The companies have dealt with challenges that include years of tight reimbursement for their prescriptions and rising costs for running their locations.
Plus, analysts say they’ve also been hit by growing competition from Walmart, Amazon and other discount retailers over sales of goods sold outside their store pharmacies. Consumers also tend to grow more price conscious when inflation rises.
“Our customers have become increasingly selective and price sensitive in their purchases,” said Wentworth, who joined the company last fall and has been conducting a review of its business.
Walgreens also has been closing VillageMD primary care clinics it had been installing next to its stores in order to grow its presence as a health care provider.
Walgreens Boots Alliance Inc. runs about 12,500 drugstores worldwide, including more than 8,600 locations in the United States.
The company said it earned $344 million in its fiscal third quarter, with adjusted results totaling 63 cents per share. Revenue rose nearly 3% to $36.35 billion.
Analysts were looking for earnings of 68 cents per share on $35.9 billion in revenue, according to FactSet.
Walgreens also said it now expects adjusted earnings to range from $2.80 to $2.95 for its fiscal year, which ends in August. That’s down from a forecast of $3.20 to $3.35 per share that it had narrowed in March.
Analysts expect $3.20 per share.
That guidance cut was not “overly shocking to us as the company now begins the next leg of its turnaround,” Leerink Partners analyst Michael Cherny said in a research note.
But the overall results surprised investors. Shares of the Deerfield, Illinois, company sank 21% to $12.38 in premarket trading.