It was a tough Thursday for Walgreens Boots Alliance (NASDAQ: WBA), as the company slashed its profit outlook for fiscal year 2024 and confirmed plans to close several underperforming stores across the United States. The news weighed heavily on its stock, causing a significant 15% drop in premarket trading, which compounds the 40% decline witnessed throughout the year.
Despite not disclosing specific numbers, the pharmacy chain operator is finalizing an extensive, multi-year initiative to shutter some 8,700+ stores. The review targets about 25% of its U.S. locations, with CEO Tim Wentworth hinting at the potential closure of a substantial proportion of these stores over the next few years, as noted in a recent interview.
This move comes as Walgreens grapples with challenges stemming from subdued consumer spending influenced by inflationary pressures. The demand in its retail operations has also dwindled, partly due to lower sales of COVID-related products. Investors are closely watching Wentworth, who took the reins last October, hoping his strategic direction and cost-cutting measures will revitalize the drugstore giant.
Walgreens is also working on streamlining its healthcare portfolio, including reducing its stake in primary care provider VillageMD. According to Wentworth’s discussion with the Wall Street Journal, Walgreens will no longer retain a majority ownership in VillageMD, marking a significant shift in its healthcare strategy.
Previous moves by Walgreens had already seen the closure of 484 stores in the UK and 625 in the U.S. as of February 2024. The company has downgraded its adjusted profit forecast for the fiscal year ending in August to $2.80 to $2.95 per share, down from the March projection of $3.20 to $3.35 per share. This is starkly contrasted by analysts' average expectations, which peg the annual profit at $3.20 per share.
Walgreens reported adjusted earnings of 63 cents per share for the third quarter, falling short of the estimated 68 cents per share, as per LSEG data. The financial outlook and the store closure strategy present a complex picture for traders looking at Walgreens—a scenario that requires careful consideration of both short-term impacts and long-term potential.
