Walgreens to close 1,200 stores over next 3 years

DEERFIELD, Ill. — Walgreens plans to shutter 1,200 stores over the next three fiscal years, including 500 in fiscal 2025, the company said Tuesday.

Walgreens Boots Alliance announced the closings as part of its earnings report for the fourth quarter of fiscal 2024, which ended August 31. The company posted sales and profits that beat Wall Street's expectations.

Adjusted earnings per share of 39 cents topped analysts' projection of 36 cents, while revenue of $37.55 billion surpassed the forecast of $35.76 billion.

WBA said the closings would be "immediately accretive" to adjusted earnings and free cash flow.

“Our financial results in the fiscal fourth quarter and full year 2024 reflected our disciplined execution on cost management, working capital initiatives and capex reduction," said CEO Tim Wentworth. "In fiscal 2025, we are focusing on stabilizing the retail pharmacy by optimizing our footprint, controlling operating costs, improving cash flow, and continuing to address reimbursement models to support dispensing margins and preserve patient access for the future.

“Fiscal 2025 will be an important rebasing year as we advance our strategy to drive value creation. This turnaround will take time, but we are confident it will yield significant financial and consumer benefits over the long term.”

Fourth quarter sales increased 6.0 percent from the year-ago quarter, reflecting sales growth across all segments.

The company had an operating loss in the quarter of $978 million, up 117.1 percent from a year ago. The increase reflects a non-cash goodwill impairment charge related to CareCentrix. Adjusted operating income was $424 million, a decrease of 37.7 percent on a constant currency basis, reflecting softer U.S. retail and pharmacy performance, lapping the reversal of incentive accruals and prior year sale-leaseback gains, partly offset by cost savings initiatives and improved profitability in the U.S. Healthcare segment.

WBA posted a net loss in the fourth quarter of $3.0 billion compared to a net loss of $180 million in the year-ago quarter, primarily driven by a higher operating loss, a $2.3 billion non-cash charge for valuation allowance on deferred tax assets primarily related to opioid liabilities recognized in prior periods, and a non-cash impairment charge related to equity investment in China. Adjusted net earnings decreased 41.0 percent to $340 million, down 40.8 percent on a constant currency basis, reflecting lower adjusted operating income.

The loss per share was $3.48, compared to a loss per share of $0.21 in the year-ago quarter. Adjusted EPS decreased 41.0 percent to $0.39, reflecting a decrease of 40.8 percent on a constant currency basis.

Net cash provided by operating activities was $1.3 billion in the fourth quarter and free cash flow was $1.1 billion, a $537 million increase compared with the year-ago quarter, each driven primarily by working capital initiatives and lower legal payments in the current period. Free cash flow also benefited from a $239 million decrease in capital expenditures.

For the full year, sales were $147.7 billion, an increase of 6.2 percent from the year-ago period, and an increase of 5.7 percent on a constant currency basis, reflecting growth across all segments.

The operating loss in fiscal 2024 was $14.1 billion, an increase of 104.5 percent compared to the year-ago period. The operating loss in the current period reflects a $12.4 billion non-cash impairment charge related to VillageMD goodwill, which resulted in a $5.8 billion charge attributable to WBA, net of tax and non-controlling interest. Operating loss in the current period also reflects non-cash impairments charges related to certain long-lived assets in the U.S. Retail Pharmacy segment and CareCentrix goodwill. Prior year operating loss reflects a $6.8 billion pre-tax charge for opioid-related claims and litigation and a $431 million non-cash impairment of pharmacy license intangible assets in Boots UK. Adjusted operating income was $2.6 billion, a decrease of 32.6 percent on a constant currency basis, reflecting a challenging U.S. retail environment, net reimbursement pressure, lower sale-leaseback gains and lapping the reversal of incentive accruals in the prior year, partly offset by cost savings and improved profitability in the U.S. Healthcare segment.

WBA posted a net loss in fiscal 2024 of $8.6 billion, an increase of 180.4 percent compared to the year-ago period, primarily driven by a higher operating loss, a $2.2 billion non-cash charge for valuation allowance on certain deferred tax assets and a $717 million after-tax charge for fair value adjustments on variable prepaid forward derivatives related to the monetization of Cencora shares. Adjusted net earnings were $2.5 billion, a decrease of 27.9 percent on a constant currency basis, primarily driven by lower adjusted operating income, partly offset by lower interest expense and a lower adjusted effective tax rate due to the recognition of deferred tax assets in foreign jurisdictions in the second quarter.

The loss per share for fiscal 2024 was $10.01, an increase of 180.4 percent compared to the year-ago period. Adjusted EPS was $2.88, a decrease of 27.6 percent, reflecting a decrease of 27.9 percent on a constant currency basis.

Net cash provided by operating activities was $1.0 billion in fiscal 2024. Free cash flow was $23 million, a decrease of $642 million from fiscal 2023, with each driven by lower earnings, higher payments related to legal matters and phasing of working capital. Free cash flow benefited from a $736 million decrease in capital expenditures.

The U.S. Retail Pharmacy segment had fourth quarter sales of $29.5 billion, an increase of 6.5 percent from the year-ago quarter. Comparable sales increased 8.3 percent from the year-ago quarter.

Pharmacy sales increased 9.6 percent and comparable pharmacy sales increased 11.7 percent in the fourth quarter, each driven by higher brand inflation and mix impacts. Comparable prescriptions, adjusted to 30-day equivalents increased 2.5 percent and comparable prescriptions excluding immunizations increased 2.6 percent compared with the year-ago quarter. Total prescriptions filled in the quarter, including immunizations, adjusted to 30-day equivalents, increased 1.7 percent to 302 million. Pharmacy margin was negatively impacted by net reimbursement pressure, brand inflation and mix impacts.

Front store sales decreased 3.5 percent and comparable retail sales decreased 1.7 percent compared with the year-ago quarter, reflecting a challenging retail environment and continued channel shift. Front store margin was positively impacted by category mix and higher owned brand penetration, partly offset by elevated shrink levels.

Adjusted operating income decreased 60.4 percent to $220 million, reflecting net reimbursement pressure, a $123 million headwind from a prior year incentive accrual release, a $74 million headwind from lower sale-leaseback gains and a challenging retail environment, partly offset by cost savings initiatives.

The International segment had fourth quarter sales of $6.0 billion, an increase of 3.2 percent from the year-ago quarter. Sales increased 3.7 percent on a constant currency basis, with the Germany wholesale business sales growing 8.2 percent and Boots UK sales growing 2.3 percent.

Boots UK comparable pharmacy sales increased 10.0 percent compared with the year-ago quarter. Comparable front store sales increased 6.2 percent compared to the year-ago quarter, with growth across all categories. Boots.com continued to perform strongly with sales growing 19 percent, representing 15 percent of Boots' total front store sales.

Adjusted operating income decreased 10.9 percent to $231 million, a decrease of 10.6 percent on a constant currency basis, mainly due to lapping real estate gains in the year-ago period.

The U.S. Healthcare segment had fourth quarter sales of $2.1 billion, an increase of 7.1 percent compared to the year-ago quarter. VillageMD sales increased 7.2 percent, reflecting additional risk lives and fee-for-service revenue. Shields grew 27.8 percent, driven by growth within existing partnerships.

The segment's operating loss in the quarter was $526 million compared to $294 million in the prior year period, reflecting the $332 million non-cash goodwill impairment charge related to CareCentrix. Adjusted operating income, which excludes certain costs related to stock compensation expense and amortization of acquired intangible assets, was $17 million compared to an adjusted operating loss of $83 million in the year-ago quarter. Adjusted EBITDA of $65 million improved by $94 million versus the prior year quarter, driven by cost discipline at VillageMD and growth from Shields.

For fiscal 2025, WBA expects adjusted EPS of $1.40 to $1.80 with growth in U.S. Healthcare and International more than offset by decline in U.S. Retail Pharmacy, a higher adjusted effective tax rate, and lower contributions from sale-leaseback and Cencora earnings.