By Bhanvi Satija and Sneha S K
(Reuters) -Walgreens Boots Alliance cut its profit forecast for fiscal 2024 and said it would close more underperforming U.S. stores as weak consumer spending hurts retail operations, dragging its shares down 20% on Thursday.
Without specifying the number of closures, the pharmacy chain operator said it was finalizing a “significant multi-year” program to close some of its more than 8,700 stores and that the firm’s review was focused on a quarter of its U.S. locations.
CEO Tim Wentworth, who came on board last October, has set in motion a complete overhaul at Walgreens through store closures, the removal of multiple mid-level executives and a $1 billion cost-cutting plan.
The drugstore operator also halved its dividend to 25 cents per share earlier this year in an attempt to conserve cash as sticky inflation dampens spending on over-the-counter products and pressure increases on reimbursement payments for filling prescriptions.
“The results this morning were just absolutely terrible. I mean, it’s kind of been the theme over the last three to eight earnings reports to be brutally honest,” said David Wagner, portfolio manager and equity analyst at Aptus Capital Advisors.
“They brought in new CEO Tim Wentworth and he has a good history on the healthcare services side”, but investors are focused on his next steps, said Wagner, whose firm owns 241,583 Walgreens shares through a unit.
The company expects the challenges to persist into fiscal 2025 and is open to closing down stores other than the ones being reviewed.
“We have a really strong level of conviction around the core business (retail pharmacy) that we are remodeling here, will be a very different Walgreens,” Wentworth said on a call with analysts.
Walgreens is also aiming to simplify its U.S. healthcare portfolio that includes primary care provider VillageMD. Wentworth told the Wall Street Journal that the company will no longer be VillageMD’s majority owner.
The company has conducted a review of its Boots UK business and concluded it will continue to invest in it, he said on a conference call.
As of February, Walgreens had closed 484 stores in the UK and 625 stores in the U.S., according to a regulatory filing.
The company forecast an adjusted profit of $2.80 to $2.95 per share for its financial year ending August, lower than the $3.20 to $3.35 per share range it announced in March. Analysts expect an annual profit of $3.20 per share, according to LSEG data.
The forecast cut also weighed on rival CVS Health’s stock, sending it about 5% lower in early trade.
Walgreens reported adjusted earnings of 63 cents per share for the third quarter, compared with estimates of 68 cents.
(Reporting by Bhanvi Satija, Christy Santhosh and Sneha S K in Bengaluru; Editing by Devika Syamnath)
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