Walgreens to take a hard look at underperforming stores, could shutter hundreds more

Walgreens is finalizing a plan to repair its enterprise that would lead to closing lots of of extra shops over the following three years.

CEO Tim Wentworth advised analysts Thursday morning that “modifications are imminent” for about 25% of the corporate’s shops, which he mentioned had been underperforming. The pharmacy chain at present runs greater than 8,600 in america.

Wentworth mentioned the corporate’s plan might embody the closing of a “good portion” of these roughly 2,100 underperforming shops in the event that they don’t enhance.

Firm leaders mentioned they’ve already closed 2,000 areas during the last 10 years. General, the corporate runs about 12,500 drugstores worldwide.

“We’re at some extent the place the present pharmacy mannequin just isn’t sustainable and the challenges in our working atmosphere require we method the market in another way,” he mentioned.

Walgreens and main opponents like CVS and Ceremony Assist — which goes via a chapter reorganization — have been closing shops as they alter to an array of challenges to their companies. They embody embody years of tight reimbursement for his or her prescriptions and rising prices for working their areas.

Plus, analysts say they’ve additionally been hit by rising competitors from Walmart, Amazon and different low cost retailers over gross sales of products bought outdoors their retailer pharmacies. Shoppers additionally are inclined to develop extra worth aware when inflation rises, and drugstores typically have greater costs than these discounters.

“Our prospects have develop into more and more selective and worth delicate of their purchases,” mentioned Wentworth, who joined the corporate final fall and has been conducting a assessment of its enterprise.

Walgreens additionally has been closing VillageMD major care clinics it had been putting in subsequent to its shops with the intention to develop its presence as a well being care supplier. The corporate had launched an aggressive enlargement of these clinics underneath earlier CEO Rosalind Brewer. However Walgreens mentioned in March that it was reversing course and shutting round 160 of the clinics.

Major care clinics like those VillageMD function are inclined to lose cash their first couple years as they construct a affected person base and enhance well being. Jefferies analyst Brian Tanquilut has mentioned the brand new clinics had been burning a variety of money and racking up losses.

However Wentworth mentioned Thursday these clinics had been now on a “clearer path to profitability.”

The CEO additionally mentioned his firm is speaking to pharmacy profit managers to “make sure that we’re paid pretty” and dealing to develop different components of its enterprise like specialty pharmacy. That helps folks with complicated or continual medical situations.

Walgreens Boots Alliance Inc. additionally reported that it missed earnings expectations and reduce its annual forecast.

The corporate earned $344 million in its fiscal third quarter, with adjusted outcomes totaling 63 cents per share. Income rose practically 3% to $36.35 billion.

Analysts had been searching for earnings of 68 cents per share on $35.9 billion in income, in line with FactSet.

Walgreens now expects adjusted earnings to vary from $2.80 to $2.95 for its fiscal 12 months, 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 count on $3.20 per share.

That steering reduce was not “overly stunning to us as the corporate now begins the following leg of its turnaround,” Leerink Companions analyst Michael Cherny mentioned in a analysis word.

However the general outcomes stunned traders. Shares of the Deerfield, Illinois, firm plunged 24% to $11.89 Thursday morning whereas the S&P 500 index rose barely.