Walgreens is planning to shutter "a significant portion" of its underperforming retail stores over the next three years.
The plan to close stores is part of the company's footprint optimization program as it faces ongoing financial headwinds related to a challenging environment for consumer spending and pharmacy operations. Walgreens previously announced about 300 store closures, but the latest news has many more on the line.
"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," Tim Wentworth, CEO of Walgreens Boots Alliance, said in a June 27 news release. "Our results and outlook reflect these headwinds, despite solid performance in both our International and U.S. Healthcare segments."
In a third quarter earnings call, Mr. Wentworth told investors that customer demographics and preferences have shifted, "and we need to reposition and operate our stores accordingly." He said 75% of the company's roughly 8,600 stores are responsible for nearly all of its retail profits.
"For the remaining 25% of the stores in our network which are not contributing to our long term strategy, changes are imminent," he said.
Plans to finalize a specific number of store closures is underway, and the company said it will consider additional closures if store profits do not improve.
Walgreens reported a 2.6% sales increase to $36.4 billion and quarterly operating income of $111 million, up from a $477 million loss last year. Boots Alliance also reported $344 million net earnings for the quarter.
However, the company is still recovering from early losses this year. Operating loss year to date was $13.1 billion and net loss hit $5.6 billion, up from $2.9 billion year over year.
The U.S. retail pharmacy segment increased sales 2.3% year over year to $28.5 billion while U.S. healthcare sales jumped 7.6% to $2.1 billion for the quarter. VillageMD and Shields drove the growth, reporting 7% and 24% higher sales than last year. The U.S. healthcare business also cut operating losses from $522 million last year to $220 million in the third quarter this year.
"Informed by our strategic review, we are focused on improving our core business: retail pharmacy, which is central to the future of healthcare," said Mr. Wentworth. "We are addressing critical issues with urgency and working to unlock opportunities for growth. Many of these actions will take time, but I am confident that we have the right team and the right strategy to lead a business turnaround for the Walgreens that our customers and patients need.”