A sign sits in front of a Walgreens store on November 10, 2023 in Wheeling, Illinois.
Scott Olson | Getty Images
Walgreens on Tuesday reported fiscal fourth-quarter sales and adjusted profit that beat Wall Street’s expectations, as the company slashes costs in an attempt to steer itself out of a rough spot.
The retail drugstore chain also said it plans to close roughly 1,200 stores over the next three years, which includes 500 in fiscal 2025 alone. The company said those closures will be “immediately accretive” to its adjusted earnings and free cash flow.
Walgreens has around 8,700 locations in the U.S., a quarter of which it says are unprofitable.
Those closures will give Walgreens a “healthier store base” and “will enable us to respond to shifts in consumer behavior and buying preferences,” the company’s CEO Tim Wentworth said during an earnings call on Tuesday. He added that Walgreens aims to employ the majority of the workforce affected by the closures, though it is unclear how many employees stand to lose their jobs.
The company’s shares closed more than 15% higher on Tuesday.
The results cap a rocky fiscal 2024 for Walgreens, which is grappling with pharmacy reimbursement pressure, softer consumer spending and challenges related to its push into primary care, among other issues. The company on Tuesday said it surpassed its target of cutting $1 billion in costs during fiscal 2024, which included shuttering underperforming stores, laying off employees and using artificial intelligence to make its supply chain more efficient, among other efforts.
Most of the benefits of the cost cuts came in the company’s U.S. retail pharmacy segment, Walgreens CFO Manmohan Mahajan said during the call.
In June, Walgreens said it intends to close a “significant” number of its underperforming stores by 2027. Tuesday’s announcement appears to be the company’s first exact estimate of how many locations it will shutter.
Here’s what Walgreens reported for the three-month period ended Aug. 31 compared with what Wall Street was expecting, based on a survey of analysts by LSEG:
- Earnings per share: 39 cents adjusted vs. 36 cents expected
- Revenue: $37.55 billion vs. $35.76 billion expected
Walgreens booked sales of $37.55 billion for the quarter, up 6% from the same period a year ago.
The company reported a net loss of $3 billion, or $3.48 per share, for the fiscal fourth quarter. That reflects a so-called valuation allowance meant to reduce the company’s deferred tax assets mainly related to opioid settlements.
It compares with a net loss of $180 million, or 21 cents per share, for the year-earlier period.
Excluding certain items, adjusted earnings were 39 cents per share for the quarter.
The fourth-quarter and full fiscal-year results “reflected our disciplined execution on cost management, working capital initiatives and capex reduction,” Wentworth, who stepped into the role nearly a year ago, said in a release.
The company’s guidance for fiscal 2025 was in line with analysts’ expectations. Walgreens expects growth in its U.S. health-care and international segments, which will be offset by a decline in its retail pharmacy segment.
The company is engaged in a “multi-year process of reframing our relationship” with pharmacy benefit managers, which negotiate drug rebates on behalf of health plans and reimburse pharmacies for prescription drugs, Wentworth said during the call. Walgreens hopes that will help improve margins in its pharmacy business.
Walgreens anticipates adjusted earnings per share of $1.40 to $1.80 in the coming fiscal year. Analysts project an adjusted profit of $1.75 per share, according to LSEG.
The company also sees revenue for the year at $147 billion to $151 billion. Wall Street analysts estimate sales of $147.3 billion.
Growth across all three business units
Walgreens reported growth across its three business divisions in the fiscal fourth quarter.
Sales from the company’s U.S. health-care unit jumped to $2.11 billion, up 7.1% compared with the same period a year ago.
Analysts had expected sales of $2.10 billion, according to estimates compiled by StreetAccount.
That partly reflects growth in primary-care provider VillageMD and specialty pharmacy company Shields Health Solutions. Shields sales jumped 27.8% during the period, which the company attributed to growth within existing partnerships.
Specialty pharmacies are designed to deliver medications with unique handling, storage and distribution requirements, often for patients with complex conditions such as cancer and rheumatoid arthritis.
Notably, Walgreens posted a steep net loss in the fiscal second quarter as it recorded a hefty nearly $6 billion charge related to the decline in value of its investment in VillageMD. In August, the company said in a securities filing it is considering a sale of the provider.
A sign advertises Covid vaccine shots at a Walgreens Pharmacy in Somerville, Massachusetts, on Aug. 14, 2023.
Brian Snyder | Reuters
Walgreens’ U.S. retail pharmacy segment generated $29.47 billion in sales in the fiscal fourth quarter, an increase of 6.5% from the same period last year. Analysts had expected sales of $28.09 billion, according to estimates compiled by StreetAccount.
That segment operates the company’s drugstores, which sell prescription and nonprescription drugs as well as health and wellness, beauty, personal care, and food products.
Walgreens said pharmacy sales for the quarter rose 9.6% and comparable pharmacy sales increased 11.7% compared with the year-earlier period due to price inflation in brand medications, among other factors.
Total prescriptions filled in the quarter including vaccines came to 302 million, a 1.7% increase from the same period a year ago. Notably, falling reimbursement rates for prescription drugs cut into pharmacy margins, the company said.
Retail sales fell 3.5% from the prior-year quarter, and comparable retail sales declined 1.7%. The company cited a “challenging” retail environment, among other factors.
Walgreens’ international unit, which operates more than 3,000 retail stores abroad, posted $5.97 billion in sales in the fiscal fourth quarter. That’s an increase of 3.2% from the year-ago period.
Analysts expected revenue of $5.81 billion for the period, according to StreetAccount.
The company said sales from its U.K.-based drugstore chain, Boots, increased 2.3%.