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Walgreens said it is planning to close a “significant” number of underperforming stores in effort to stave off economic difficulties.
Shares of Walgreens plunged 24% in early afternoon trading after the drugstore chain reported third-quarter earnings that signaled it’s dealing with a challenging U.S. retail environment and industry trends that are gnawing at the pharmacy sector.
The pharmacy giant plans to shutter a significant share of its 8,600 U.S. locations over a period of years, the Wall Street Journal first reported.
“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,” said Tim Wentworth, Walgreens’ chief executive officer, in a statement.
Wentworth told investors during the company’s earnings call Thursday that it’s embarking on a “multifactor optimization program” that will look to “reposition” its stores to operate accordingly.
“Changes are imminent,” Wentworth said in regard to the 25% of stores that are not profitable.
Once the program is finalized, Wentworth said there a “significant portion” of underperforming stores will be closed over the next three years.
Walgreens also slashed its adjusted profit outlook for the fiscal 2024 year. It now expects earnings per share to be between $2.80 and $2.95. Its previous outlook forecasted earnings per share to be in the range of $3.20 and $3.35.
Deerfield, Illinois-based Walgreens did beat Wall Street revenue estimates. For the third-quarter period, it reported revenue of $36.4 billion. The Street forecasted it would report $35.94 billion, according to FactSet.
Walgreens also said that its healthcare segment both in the U.S. and internationally helped it offset expenses during the quarter. Pharmacy sales in its U.S. division rose by 4.4%. Meanwhile, international sales increased 5.8%, led largely by the company’s U.K. subsidiary, Boots.
Back in March, Walgreens had recorded a quarterly net loss of $5.9 billion, due to the sale of VillageMD. During that time, the company said that it planned to close 160 of the VillageMD clinics.
The company’s profit outlook markdown comes at a time when U.S. consumers are still wrestling with inflation, which has been a key factor in their discretionary spending decisions.
In May, Walgreens said it would be slashing prices on more than 1,000 items in an effort to ease financial strain on American consumers. The discount period is expected to continue through the summer, with gummy vitamins, pain relief patches, Igloo coolers, and goggles being marked down.