Walgreens Eyes $1 Billion in Cost Cuts as New CEO Arrives

Walgreens Boots Alliance Inc. announced a $1 billion cost-cutting program as it prepares to reset its growth strategy under a new chief executive officer.

(Bloomberg) — Walgreens Boots Alliance Inc. announced a $1 billion cost-cutting program as it prepares to reset its growth strategy under a new chief executive officer.

The drugstore chain also aims to lower capital expenditures by about $600 million, and expects to see the impact of the cost reductions begin by early next year, according to a statement Thursday. 

The plans set the stage for the arrival of new CEO Tim Wentworth, who’s scheduled to take over on Oct. 23. After his predecessor Rosalind Brewer accelerated a push into primary care and other dimensions of the industry, the cost cuts may signal a pause amid investor dissatisfaction and the departure of some top executives, including former chief financial officer James Kehoe.

Read More: Walgreens Names Former Cigna Executive Tim Wentworth New CEO 

“We’re taking a hard look at all projects and stopping those that are not essential,” interim CEO Ginger Graham said on a call with investors. “These actions reduce expenses, but more importantly, they help focus our energy on the most important needs for the business and for our customers.” 

Fiscal fourth-quarter earnings of 67 cents a share missed analysts’ average estimate by 2 cents. The shares gained as much as 6.1% at 12:15 p.m. in New York. They lost 40% this year through Wednesday. 

Walgreens issued guidance below analyst estimates after slashing its 2023 forecast in June. Adjusted earnings for the year ending in August will be in the range of $3.20 to $3.50 a share, the company said, while the average of analysts surveyed by Bloomberg was $3.70. Walgreens said it won’t be providing guidance beyond fiscal 2024 as it evaluates macroeconomic trends and challenges.

“The former CEO and CFO gave outer-year financial targets to the Street but clearly, the business wasn’t meeting expectations,” Bloomberg Intelligence analyst Jonathan Palmer said in an email. “With a new CEO coming in and presumably a new CFO, it makes sense to pull back from those and let the new managers update when they have their hands around it.”

The cost-cutting plans include altering store hours based on local market trends and closing unprofitable locations, Graham said. The company is evaluating its footprint and plans to exit about five markets and 60 clinics in the coming fiscal year, said John Driscoll, president of US health care for the company.

“Our long-term focus will be on achieving density in those regions with the greatest potential to drive future profitability growth and where we can best serve patients with our consolidated set of assets,” he said on the call.

Shifts, Changes

Under Brewer, Walgreens invested $5.2 billion in primary-care provider VillageMD, a move that allowed it to open hundreds of doctors’ offices in its drugstores. The US health-care unit, which includes VillageMD, posted revenue of $2 billion, slightly below analysts’ average estimate. The chain attributed the result to its acquisition of CareCentrix and the purchase of Summit Health by VillageMD.

Since Brewer’s departure at the end of August, Walgreens has made a series of organizational shifts and changes. Graham paused an effort to modernize pharmacy systems and the launch of five pharmacy automation technology centers that use robotics to fill a large number of prescriptions. The sites, called micro-fulfillment centers, are designed to relieve pharmacists from routine tasks and allow them to focus on patient care and clinical services, like vaccinations.

Read More: New Walgreens CEO Will Have to Shake Chairman’s Enduring Grip

Over the last two years Walgreens has opened 11 of these centers to support more than 4,000 stores filling over 2.3 million prescriptions a week across 29 states. The company said last month that it planned to have a total of 19 such sites by the end of 2024.

Walgreens’ US retail pharmacy unit posted revenue of $27.7 billion, beating analysts’ estimates. The drugstore chain’s international business sales rose 12% to $5.8 billion, narrowly beating analysts’ expectations. Walgreens abandoned plans for a $6 billion-plus sale of the unit last summer after failing to get the desired value.

(Updates with analyst comment in seventh paragraph.)

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