Walgreens Slashes Profit Forecast and Plans Store Closures Amid Weak Consumer Spending

consumer spending

Walgreens Boots Alliance (NASDAQ:WBA) has reduced its profit outlook for fiscal 2024 and announced plans to shut down additional underperforming U.S. stores, a move driven by sluggish consumer spending. This announcement led to a 20% drop in the company’s shares on Thursday.

The pharmacy chain did not specify the exact number of store closures but mentioned it is finalizing a “significant multi-year” program targeting a quarter of its more than 8,700 U.S. locations. CEO Tim Wentworth, who joined last October, has initiated an extensive restructuring at Walgreens, which includes store closures, eliminating several mid-level executive positions, and implementing a $1 billion cost-cutting strategy.

Walgreens Halves Dividend Amid Reduced Consumer Spending

Earlier this year, Walgreens halved its dividend to 25 cents per share to conserve cash as persistent inflation reduces consumer spending on over-the-counter products and increases pressure on reimbursement payments for prescriptions.

David Wagner, portfolio manager and equity analyst at Aptus Capital Advisors, remarked, “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.” His firm holds 241,583 shares of Walgreens.

Wagner also noted that while new CEO Tim Wentworth has a solid track record in healthcare services, investors are keenly watching his next steps.

Walgreens anticipates these challenges to continue into fiscal 2025 and is open to closing additional stores beyond the current review.

Wentworth expressed confidence in the core business, stating, “We have a really strong level of conviction around the core business that we are remodeling here, will be a very different Walgreens,” during a call with analysts.

In addition to store closures, Walgreens aims to streamline its U.S. healthcare portfolio, including primary care provider VillageMD. Wentworth told the Wall Street Journal that Walgreens will no longer be VillageMD’s majority owner.

The company has reviewed its Boots UK business and decided to continue investing in it, as mentioned in a conference call. As of February, Walgreens had closed 484 stores in the UK and 625 stores in the U.S., according to regulatory filings.

For the financial year ending in August, Walgreens now forecasts an adjusted profit of $2.80 to $2.95 per share, down from the previously announced range of $3.20 to $3.35 per share in March. Analysts had expected an annual profit of $3.20 per share, according to LSEG data.

This revised forecast also impacted rival CVS Health (NYSE:CVS), whose stock fell by about 5% in early trading.

For the third quarter, Walgreens reported adjusted earnings of 63 cents per share, missing estimates of 68 cents.

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