Walgreens is finalizing a plan to fix its business that could result in the closure of hundreds of additional stores over the next three years.
CEO Tim Wentworth told analysts Thursday morning that “changes are imminent” for about 25% of the company’s stores, which he said were underperforming. The pharmacy chain currently has more than 8,600 in the United States.
Wentworth said the company’s plan could include closing a “significant portion” of those roughly 2,100 underperforming stores if they don’t improve.
Company officials stated that they have already closed 2,000 stores in the last 10 years. In total, the company manages about 12,500 pharmacies around the world.
“We are at a point where the current pharmaceutical model is not sustainable and the challenges in our operating environment require us to approach the market differently,” he said.
Walgreens and its major competitors such as CVS and Rite Aid, which is undergoing bankruptcy reorganization, have been closing stores as they adjust to a series of challenges to their businesses. They include years of adjusted reimbursement for their prescriptions and increasing costs to operate their locations.
Additionally, analysts say they have also been hurt by increasing competition from Walmart, Amazon and other discount retailers for sales of products sold outside of their in-store pharmacies. Consumers also tend to become more price conscious when inflation rises, and pharmacies generally have higher than discount prices.
“Our customers have become increasingly selective and price-sensitive in their purchases,” said Wentworth, who joined the company last fall and has been conducting a review of its business.
Walgreens has also closed the VillageMD primary care clinics it had been setting up next to its stores to increase its presence as a healthcare provider. The company had launched an aggressive expansion of those clinics under previous CEO Rosalind Brewer. But Walgreens said in March that it was reversing course and closing about 160 clinics.
Primary care clinics like those operated by VillageMD tend to lose money during the first few years as they build a patient base and improve health. Brian Tanquilut, an analyst at Jefferies, has said the new clinics were burning a lot of cash and racking up losses.
But Wentworth said Thursday that those clinics were now on a “clearer path to profitability.”
The CEO also said his company is talking to pharmacy benefit managers to “ensure we are paid fairly” and working to grow other parts of its business, such as specialty pharmacy. That helps people with complex or chronic medical conditions.
Walgreens Boots Alliance Inc. also reported it missed earnings expectations and cut its full-year forecast.
The company earned $344 million in its fiscal third quarter, with adjusted results totaling 63 cents per share. Revenue rose nearly 3% to $36.35 billion.
Analysts had expected earnings of 68 cents per share on $35.9 billion in revenue, according to FactSet.
Walgreens now expects adjusted earnings to range between $2.80 and $2.95 for its fiscal year, which ends in August. That’s down from a $3.20 to $3.35 per share forecast he had lowered in March.
Analysts expect $3.20 per share.
That guidance cut was “not too impactful for us as the company now begins the next stage of its recovery,” Leerink Partners analyst Michael Cherny said in a research note.
But the overall results surprised investors. Shares of the Deerfield, Illinois, company fell 24% to $11.89 on Thursday morning, while the S&P 500 index rose slightly.
