Walgreens said Thursday it may close up to a quarter of its more than 8,600 U.S. stores as inflation-hit consumers cut back on spending and retail sales plummet.
The struggling drugstore chain, which closed 150 U.S. stores last year, lowered its profit forecast ahead of its quarterly earnings report, sending its shares plummeting nearly 25 percent in intraday trading.
Tim Wentworth, who took over as CEO of the 123-year-old Walgreens in October, cited “continued pressures on the U.S. consumer and the impact of recent market trends that have compressed pharmacy profit margins” as the reason for the lower expectations.
He announced a turnaround plan that includes closing underperforming stores, firing several middle-management executives and implementing $1 billion in cost-cutting measures.
“Approximately 25 percent of Walgreens stores are not contributing to our long-term strategy,” a Walgreens representative told The Washington Post.
“We are finalizing an optimization program which includes closing the majority of these stores over the next three years.”
The Deerfield, Illinois-based company last month cut prices on more than 1,300 products but did not disclose exactly how many stores it would close.
“Consumers are completely surprised by the absolute prices of goods, and the fact that some goods have not increased in price does not change their resistance to current pricing,” Wentworth told CNBC.
The company revealed Adjusted earnings per share fell 36.6%. Due to the “challenging U.S. retail environment,” sales decreased compared to the same period last year excluding the impact of currency fluctuations.
The company now expects adjusted earnings of $2.80 to $2.95 per share for the fiscal year ending in August, below the range of $3.20 to $3.35 per share it announced in March.
Analysts are expecting full-year earnings per share of $3.20, according to LSEG data.
Walgreens shares fell 24.3% to $11.93 on Thursday.
The company halved its dividend to 25 cents a share earlier this year to conserve cash as rising inflation reduces spending on over-the-counter drugs and puts upward pressure on prescription reimbursement payments.
“The earnings report this morning was absolutely awful, and frankly we’ve seen the same sort of pattern over the last three to eight earnings reports,” said David Wagner, portfolio manager and equity analyst at Aptus Capital Advisors.
“They have a new CEO, Tim Wentworth, who has a great track record in the health care services space,” but investors will be watching to see what he does next, added Wagner, whose company holds 241,583 shares of Walgreens stock through its unit.
Walgreens is also looking to streamline its U.S. healthcare portfolio, which includes primary care provider VillageMD.
Wentworth told The Wall Street Journal that his company will no longer be a majority shareholder in VillageMD.
He said on the conference call that the company had also conducted a review of its Boots UK business and concluded that it would continue to invest in it.
Walgreens had closed 484 stores in the UK and 625 in the US as of February, according to regulatory filings.
“We have very high confidence that the core business that we’re transforming — retail pharmacy — is going to be very different than Walgreens,” Wentworth said on a conference call with analysts.
Wentworth was appointed CEO after previous CEO Rosalind Brewer announced her departure after a difficult two-and-a-half year tenure.
