Walgreens has announced a strategic plan to close around 1,200 stores across the United States over the next three years. This decision comes as the drugstore chain endeavors to revitalize its struggling U.S. business, which recently reported a significant $3 billion loss in its latest quarterly financial report. In a statement released, Walgreens indicated that approximately 500 of these closures will occur in the current fiscal year. The intention behind this move is to enhance adjusted earnings and boost free cash flow.
Despite operating about 8,500 stores nationwide, Walgreens has not yet disclosed the specific locations of the closures. This decision is part of a broader turnaround plan that was first hinted at in June by Walgreens Boots Alliance Inc. executives, aimed at reversing the company's fortunes by shuttering several underperforming outlets. Additionally, the plan includes closing 300 stores that had already been designated under a previous cost-reduction strategy.
CEO Tim Wentworth has referred to the current fiscal year as a "rebasing year," highlighting its importance in stabilizing the company. He conveyed optimism about the long-term benefits of the turnaround strategy, acknowledging that while the process will take time, it is expected to yield substantial financial and consumer advantages. Walgreens faces several challenges, such as tighter reimbursement rates for prescriptions and escalating operational costs. The company also competes with online retail behemoths like Amazon, alongside traditional rivals such as Walmart and Target.
As Walgreens navigates these challenges, it is noteworthy that CVS Health Corp. is executing a plan to close 900 stores over three years, while Rite Aid Corp. recently restructured post-bankruptcy, reducing its store count to approximately 1,300. Walgreens has also reconsidered its strategy regarding the expansion of primary care clinics, a project started under former CEO Rosalind Brewer. In August, the company disclosed a review of its U.S. health care operations, with a possible sale of its VillageMD clinic business on the table, despite previous commitments to expand it.
Financially, Walgreens cut its dividend earlier in 2024 to preserve cash for growth, subsequently lowering its fiscal 2024 forecast in June. The company attributed its over $3 billion net loss in the final quarter of 2024 to weak retail and pharmacy performance, alongside hefty charges from opioid litigation settlements and a Chinese equity investment. Nevertheless, these financial results surpassed Wall Street expectations, which had forecasted earnings of 36 cents per share on $35.75 billion in revenues for the fiscal fourth quarter.
Looking forward, Walgreens projects adjusted earnings for the new fiscal year to be between $1.40 and $1.80 per share, with anticipated growth in its U.S. health care and international sectors partially compensating for a decline in U.S. retail pharmacy earnings. For fiscal 2025, analysts predict adjusted earnings of $1.72 per share. While some aspects of the fourth quarter results and 2025 forecast were more positive than feared, concerns remain regarding the broader challenges facing Walgreens Boots Alliance, especially under the stewardship of the relatively new CEO, Tim Wentworth.
After announcing these strategic changes, Walgreens shares saw a nearly 4% rise before the market opened. However, the stock has suffered considerably over the year, losing nearly two-thirds of its value and closing at $9 as of Monday. The situation reflects ongoing uncertainty and the critical nature of the forthcoming strategic efforts to restore the company's market standing.