Walgreens Cuts Forecast, to Close 300 Boots Stores in UK

(Bloomberg) — Walgreens Boots Alliance Inc. slashed its full-year profit forecast and announced plans to close 450 stores in the US and UK, sending the drugstore chain’s stock plunging.

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Walgreens will close 300 UK Boots stores and 150 US locations as it seeks to focus investment on its best performers, Chief Financial Officer James Kehoe said on a call with investors Tuesday.

After the pandemic pulled people into drugstores for vaccines and tests, cracks are starting to reappear in the business model that depends on pharmacy-driven foot traffic to sell higher-margin items like toothpaste and over-the-counter therapies. The end of the pandemic emergency has also seen states drop residents from the rolls of Medicaid, the US health program for low-income people.

Annual adjusted earnings will be $4 to $4.05 a share for the year ending in August, the Deerfield, Illinois-based company said Tuesday, down from an earlier range of $4.45 to $4.65. The drugstore chain’s third-quarter earnings also missed analysts’ estimates.

Walgreens fell as much as 11% to $28.14, their lowest level since late 2010 and their biggest intraday loss since Nov. 17, 2020, when online retail giant Amazon.com Inc. said it would expand its push into US prescription drug sales.

“There has been a steep drop-off in Covid vaccines and testing, and with the end of the public-health emergency we are also experiencing a slower profit ramp for US health care,” Chief Executive Officer Roz Brewer said on the earnings call.

Meanwhile, a recent round of inflation in the US could be contributing to consumers’ hesitation to spend. US Federal Reserve Chair Jerome Powell said last week that interest rates are likely to increase this year.

“We have seen changing market trends that have consumers prioritizing value in response to a more uncertain and challenging economic environment,” Brewer said on the call.

Walgreens and other drugstores have also been dealing with a shortage of pharmacists that has led the chain to cut some hours at the counter. The company has taken steps to attract and retain pharmacy staff by offering incentives like overtime pay and bonuses and has invested in pharmacy automation technology.

Executives on the call said they are continuing to see improvements in pharmacy staffing, and have hired almost 1100 new pharmacists in the quarter. They’ve also been returning stores to their regular full operating hours, Brewer said.

Savings Target

While Walgreens is betting on an expansion into the wider health world — adding primary-care centers to US locations, partnering with insurers and moving into clinical trial recruitment — the transition hasn’t been simple.

“The health-care services segment is taking longer to stand up,” Bloomberg Intelligence analyst Jonathan Palmer said in a note, “which isn’t a huge surprise and at the same time, Walgreens’ ability to catalyze the unit by deploying capital is slowly drying up.”

Quarterly revenue in the US health-care business matched analysts’ average estimate of $2 billion.

Walgreens raised the target for savings from a cost-cutting program to $4.1 billion from $3.5 billion, and expects savings of $800 million in fiscal 2024. The company said in May that it would cut 10% of its corporate workforce, or about 504 employees, as it seeks to restructure to align better with a focus on patient care. Those job cuts were completed in about four months, Kehoe said, saving more than $100 million.

–With assistance from Katie Linsell and Ilena Peng.

(Adds store closures in first paragraph)