(Bloomberg) — Walgreens Boots Alliance Inc. slashed its guidance due to a worsening retail environment and announced it would close significantly more stores as its new chief executive officer seeks to turn the business around.
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In addition to shuttering locations, management said it would make more organizational changes without specifying further job cuts. The company has had a rocky few years with turnover in the executive ranks amid a challenging retail climate.
Walgreens shares sank as much as 25% on Thursday, the biggest one-day decline since at least 1980, according to data compiled by Bloomberg.
“The positive sentiment around Tim Wentworth’s hiring as CEO has dissipated,” Bloomberg Intelligence analyst Jonathan Palmer said. “It’s increasingly apparent that there won’t be an easy solution to the turnaround as profitability in the core US pharmacy continues to trend downwards.”
Investors were expecting a “more decisive outcome” from management’s strategic review like a sale of its Boots chain or some kind of deal for primary care provider VillageMD, he added.
Downgrades
Walgreens cut its forecast range for full-year adjusted earnings to $2.80 to $2.95 per share, after lowering the top end of its guidance the prior quarter. Adjusted earnings for the three months ending May 31 were 63 cents a share, worse than the 68 cents that Wall Street analysts anticipated.
The company said in presentation slides that it expects recent headwinds to persist into the next fiscal year.
“It is difficult to discern how these potential changes may impact the company’s financial prospects over the next few years as we await more details,” Edward Jones analyst John Boylan said. “Walgreens is doing the right things, but it will take time for its strategy to unfold, and in the meantime the company faces a tentative and changing consumer.”
Operating income in the quarter was $111 million compared to a $477 million operating loss a year ago when the company took a $431 million writedown on its Boots business.
The Boots business saw quarterly sales of $5.7 billion, an increase of 2.8% from the year-ago period. The company had revived discussions last year about a potential exit from the division but has since shelved plans for a possible initial public offering of Boots and is now exploring other options, Bloomberg reported, citing people with knowledge of the matter.
On a call with investors, Wentworth said the company is “committed” to investing in Boots while it finds “innovative ways for this business to fulfill its potential.”
Primary Care
Like rival CVS Health Corp, Walgreens has been moving away from its retail roots and pushing deeper into potentially more lucrative areas like primary care. The efforts have hit profits though, putting pressure on executives to execute a turnaround.
The shares lost half their value during the short tenure of Chief Executive Officer Roz Brewer. Under the current CEO Wentworth, who was appointed in 2023, the company has launched a review of the business aimed at increasing cash flow and growing more in health care. Late last year, the drugstore announced a $1 billion cost-cutting program, in part by closing unprofitable locations. On Thursday, management said they’re on track to meet that goal.
The US health-care unit, which includes VillageMD, grew more than its traditional retail pharmacy division.
The health-care segment posted revenue of $2.1 billion, an increase of 7.6% compared to the year-ago quarter. Walgreens has invested $5.2 billion in VillageMD, allowing it to open hundreds of doctors’ offices in its drugstores. But the division hasn’t performed as well as expected. It has since announced plans to close 160 of the clinics, and last quarter announced a $5.8 billion writedown related to the business.
The company’s US retail pharmacy unit posted revenue of $28.5 billion, an increase of 2.3% from the year-ago quarter.
–With assistance from Angel Adegbesan and Bre Bradham.
(Updates analyst, CEO comments starting in fourth paragraph. An earlier version of the story corrected the timing of the Boots impairment charge.)
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