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Walgreens closing numerous stores amid 'challenging' retail environment

From March through May 2024, Walgreens reported a 48% drop in operating income compared to the same period in 2023.
Walgreens-Clinic Challenges
Posted at 8:44 AM, Jun 27, 2024

Walgreens, one of America's largest pharmacy chains, announced early Thursday plans to close numerous stores across the U.S. as it embarks on a "significant multiyear footprint optimization program to close certain underperforming" locations.

The company did not say exactly how many of its nearly 8,600 locations it plans to close, but company CEO Tim Wentworth told investors on Thursday that 25% of the chain's footprint is considered "underperforming." He said these underperforming stores would close over the next three years as leases expire.

Walgreens also adjusted its earnings expectations for the rest of 2024 amid "challenging pharmacy industry trends and a worse-than-expected U.S. consumer environment."

"We continue to face a difficult operating environment, including persistent pressures on the U.S. consumer and the impact of recent marketplace dynamics which have eroded pharmacy margins. Our results and outlook reflect these headwinds, despite solid performance in both our International and U.S. Healthcare segments," said Wentworth. "Informed by our strategic review, we are focused on improving our core business: retail pharmacy, which is central to the future of healthcare. We are addressing critical issues with urgency and working to unlock opportunities for growth. Many of these actions will take time, but I am confident that we have the right team and the right strategy to lead a business turnaround for the Walgreens that our customers and patients need.”

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For the three months ending May 31, Walgreens reported a 48% drop in operating income in the U.S. compared to the same timeframe in 2023. In the nine months leading to May 31, Walgreens had a 38% decline in operating income, compared to a year earlier.

Walgreens blamed the drop in income on "lower sale and leaseback gains, a challenging retail environment and reimbursement pressure, net of procurement savings, partly offset by cost savings initiatives."

Wentworth told investors that it intends to "redeploy the vast majority of the workforce" in the stores it closes.

Wentworth said that he is aware that in many communities, Walgreens might be the only pharmacy in the area. He suggested that Walgreens would avoid closures in those areas.

"We are the only thing standing between those places and being pharmacy deserts," he said. "And our goal is not simply to be the last one to leave. Our goal is to actually find new ways to work together, whether it's a state Medicaid program, whether it is local law enforcement and so forth for them to do their jobs so that we can do our jobs and continue to provide care in those communities."

Walgreens' top competitor CVS said in May that operating income from its stores was down 34% in the first three months of 2024 compared to 2023.

The announcement comes as large Midwest pharmacy chain Rite Aid announced it was closing locations in Ohio and Michigan while shuttering operations at a Michigan-based distribution center.