Walgreens is setting out to cut at least $1 billion in costs as it prepares to welcome its new CEO.
News of the cost cuts arrived with Walgreens' latest fiscal year results: a net loss of $3.1 billion, compared with net earnings of $4.3 billion the year prior. Walgreens reported a net loss of $180 million in its fiscal fourth quarter earnings.
A sizable chunk of the cost reductions are likely to stem from Walgreens' primary care subsidiary VillageMD, which plans to exit about five markets and close around 60 clinics in fiscal 2024, the company said in an Oct. 12 earnings call. The exits may come in multiple forms, including sales and hybrid equity arrangements.
"As we exit these non-strategic markets, 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," John Driscoll, executive vice president and president of U.S. healthcare at Walgreens, said.
In addition to these exits and trimming $1 billion or more, the company plans to lower capital expenditures by about $600 million. It expects to see the savings of the cost reduction in the second quarter of fiscal 2024.
"Our performance this year has not reflected [Walgreens Boots Alliance's] strong assets, brand legacy, or our commitment to our customers and patients," Walgreens Interim CEO Ginger Graham said in the company's Oct. 12 news release. In addition to expense reduction, she noted that Walgreens is "intently focused on accelerating our profitability in the U.S. healthcare segment."
Ms. Graham said the cost-cutting plan and other performance initiatives were drafted in the past six weeks, which aligns with CEO turnover at the organization.
Walgreens announced Oct. 11 that Tim Wentworth, CEO of Cigna subsidiary Evernorth and former CEO of Express Scripts, will join Walgreens as CEO Oct. 23. He replaces Rosalind "Roz" Brewer, who resigned abruptly Sept. 1 after leading the drugstore chain since March 2021.
Ms. Brewer made a number of steps to further the company into healthcare delivery, including VillageMD's $8.9 billion acquisition of physician practice group Summit Health in January 2023.
Walgreens' Q4 earnings of 67 cents per share missed the average estimate by 2 cents. The company's profit forecast for fiscal 2024 also fell short of Wall Street estimates, with adjusted earnings of $3.20 to $3.50 a share compared to the average of $3.70 from analysts surveyed by Bloomberg.