
Walgreens Boots Alliance Inc. has been supporting their stores with pharmacy profits as they lose a lot of money on their other retail lines. This bodes ill for controlling prescription drug costs in America, and will further challenge inner city residents seeking to fill their prescriptions:
Walgreens plans to close 1,200 stores as it looks for a turnaround
Walgreens’ stock has been hammered this year as consumer shopping patterns have changed, but the company’s latest earnings are getting better reception
By Emily Bary - October 15, 2024Walgreens Boots Alliance Inc. plans to shutter about 1,200 stores over the next three years in a bid to improve earnings.
The retail and pharmacy chain has struggled in recent years as shopping preferences have changed and consumers have moved to buy more products online. Walgreens previously embarked on a cost-cutting plan largely targeting the retail pharmacy business.
Walgreens announced the three-year plan for store closures alongside its earnings Tuesday morning, with the company noting that about 500 of the closures are expected in fiscal year 2025, which just began.
The company expects the move will prove immediately accretive to adjusted earnings per share and free cash flow.
After a deeply disappointing report three months back that brought a guidance cut and ushered in a 22% one-day stock decline, Walgreens’ latest results are getting a better reception on Wall Street. Shares are up 5% in premarket action Tuesday as Walgreens cleared the consensus view on both revenue and earnings.
The results “reflected our disciplined execution on cost management, working capital initiatives and capex reduction,” Chief Executive Tim Wentworth said in a release.
Walgreens’ revenue rose 6% to $37.5 billion, while analysts were looking for $35.8 billion.
The company’s U.S. retail pharmacy business saw a 6.5% sales gain in the quarter as well as an 8.3% rise in comparable sales. Pharmacy sales were up 9.6%, or 11.7% on a comparable-sales basis, reflecting “higher brand inflation and mix impact,” according to Walgreens’ earnings release.
Retail sales fell 3.5%, while comparable retail sales were down 1.7%, “reflecting a challenging retail environment and continued channel shift,” Walgreens said.
The company posted a fiscal fourth-quarter net loss of $3.0 billion, or $3.48 a share, compared with $180 million, or 21 cents a share, in the year-earlier period. The sizable loss included multiple non-cash charges.
On an adjusted basis, Walgreens earned 39 cents a share, while analysts tracked by FactSet were modeling 36 cents a share.
For fiscal 2025, Walgreens models $1.40 to $1.80 in adjusted earnings per share, while the FactSet consensus was for $1.72. The company expects its U.S. healthcare business and international business to grow, while the U.S. retail pharmacy business is anticipated to decline. The company is also looking for $147 billion to $151 billion in fiscal 2025, sales, while analysts were modeling $147.6 billion.
“Fiscal 2025 will be an important rebasing year as we advance our strategy to drive value creation,” Wentworth said. “This turnaround will take time, but we are confident it will yield significant financial and consumer benefits over the long term.”
Walgreens shares are down 66% so far this year.
NPR reporter Alina Selyukh has posted a backgrounder on the troubles at CVS and Walgreen's:
https://www.npr.org/2024/10/16/nx-s1-5154129/cvs-and-walgreens-closing-stores-why
CVS and Walgreens are ailing. Here’s why
By Alina Selyukh - October 16, 2024Not too long after Tim Wentworth became CEO of Walgreens, he revealed a stunning figure: Roughly a quarter of the pharmacy chain’s stores do not make money.
On Tuesday, he said 1,200 of those stores will close over three years. That’s two weeks after rival CVS announced layoffs of 2,900 corporate staff. Both chains are on a multibillion-dollar cost-saving spree — closing hundreds of locations, cutting thousands of jobs and, really, reconsidering their role in Americans’ lives.
The slow simmer of mistakes and misfortunes has come to a boil for the biggest U.S. drugstore chains. They’ve accumulated too many stores at a time of changing shopper habits. They’re saddled with numerous government fines and a particularly ailing relationship with health insurers.
The problem of stores
CVS and Walgreens have some notable differences. Walgreens, which also owns the British drugstore Boots, is more singularly focused on its pharmacy business. CVS has expanded further into health care through mergers with insurer Aetna and Caremark, a pharmacy benefit manager that helps insurers negotiate prescription drug coverage and costs. Yet the two companies have made similar missteps.
The simplest part of the problem is scale. CVS and Walgreens grew massive nationwide footprints of more than 9,000 and 8,000 stores, respectively. They gobbled up mom-and-pop shops and signed long-term leases for prime locations on street corners.
Now, shoppers regularly complain about chronically understaffed stores, with products locked up to prevent theft. The shelves of snacks, makeup, greeting cards and cleaning products were meant to boost profits. But sales have sagged for years — a result of a losing battle with Amazon, Walmart, Costco, grocery and dollar stores.
CVS and Walgreens “probably do have too many stores because they overexpanded, but the bigger problem is that the stores that they have are not very good,” said Neil Saunders, retail analyst at the firm GlobalData.
The chains have failed to add new incentives for shoppers, beyond photo booths and returns drop-off centers, says Anshuman Jaiswal, a longtime consultant to retailers and pharmacies. And neither chain has built a meaningful online presence designed to give customers what they need.
“If you go to CVS.com or Walgreens.com, if you are placing an order for cough syrup, why don't I sell chicken broth as a product recommendation immediately?” Jaiswal says. “It's about reimagining the business model.”
The problem of prescriptions
Given the retail struggles, pharmacies could perhaps simply ditch the convenience store and focus on selling medicine — except CVS and Walgreens say it’s harder and harder to make a profit from this part of their business.
Years ago, a big shift in the power balance between pharmacies and health insurers revealed the limits of drugstores’ leverage.
“Historically, there was a view that there was a lot of customer loyalty to their specific retail pharmacy … and that patients, or consumers, would be all up in arms if they were forced to move their prescriptions,” says Brian Tanquilut, health care services analyst at the investment bank Jefferies.
Walgreens tested this theory about a decade ago when it got into a public fight with Express Scripts, a pharmacy benefit manager that worked with major health insurers.
Walgreens and Express Scripts played a game of chicken over how much Walgreens should earn from prescriptions — and Walgreens lost. For a time, it got kicked out of insurance networks used by millions of people, who simply went elsewhere to get their medicine at the lower in-network prices.
“What that did was to prove that patient loyalty is not to the retail pharmacy, but it actually is whatever my insurance is willing to pay,” Tanquilut says. “And that opened the door for the payers to keep pushing pricing down on retail pharmacy chains.”
Hoping reinvention is the cure
These days, CVS and Walgreens are facing tough competition from pharmacies that don’t depend as much on profits from prescriptions because they’re part of retail giants, including Walmart and Costco. The drugstore chains also have spent millions of dollars on government fines over allegations of unsafe staffing levels, overbilling government insurance programs and contributing to the opioid epidemic.
Over the years, CVS and Walgreens attempted to reframe themselves as health care hubs, expanding primary-care clinics. But these operations cost time and money.
On Tuesday, Walgreens CEO Wentworth said his chain is “reorienting to its legacy strength as a retail pharmacy-led company.” CVS is reportedly weighing a breakup to undo its mergers with Aetna and Caremark.
Both companies are also proposing new structures for how they want to be paid for filling prescriptions, hoping this is the big shot in the arm they need.
"I'm very confident that over a two- to three-year period we will have reset the framework for reimbursement discussions," Wentworth told investors on Tuesday. “We are in the early stages of a turnaround that will take time.”