Walgreens to Close Stores, Cut VillageMD Stake Amid Profit Warning

The decision is part of a broader strategy to address the challenging environment for its pharmacy operations.

US-based Walgreens has planned to close a significant portion of its underperforming retail pharmacy stores in the US over the next three years. 

The decision is part of a broader strategy to address the challenging environment for its pharmacy operations. 

In addition to closing stores, Walgreens plans to reduce its stake in the primary care company VillageMD. The decision follows a significant investment of $6 billion in VillageMD and a subsequent acquisition of urgent and primary care chain Summit Health-CityMD for nearly $9 billion in 2022. 

Wallgreens CEO Tim Wentworth will no longer be the majority owner of VillageMD,  per The Wall Street Journal report. 

"We believe in the future of these businesses [VillageMD, Summit Health, and CityMD] and intend to remain an investor and partner. But as part of our persistent focus on value creation for Walgreens Boots Alliance, we are collaborating with leadership to rapidly unlock liquidity, enhance optionality, and position them for additional growth," the CEO said.

Closures & Financial Turnaround

The company reduced its full-year adjusted earnings guidance to between $2.80 and $2.95 per share, down from the previous forecast of $3.20 to $3.35 per share, announced during its second-quarter earnings call.

Walgreens reported adjusted earnings per share of 63 cents for the third quarter, a 37% decrease from the same period in 2023. The company’s profit for the quarter fell short of Wall Street analysts’ expectations.

Commenting on the difficulties, Wentworth said, "We continue to face a difficult operating environment, including persistent pressures on the US consumer and the impact of recent marketplace dynamics which have eroded pharmacy margins. Our results and outlook reflect these headwinds despite solid performance in both our International and US healthcare segments."

Furthermore, Wallgreens CFO Manmohan Mahajan mentioned that the company anticipates continued headwinds in its pharmacy business into 2025.

Moreover, CEO Wentworth explained the rationale behind the store closures, stating that approximately 25% of Walgreens stores are not contributing to the company's long-term strategy. Most employees from the affected stores will be offered positions elsewhere.

Walgreens has been reviewing its business operations comprehensively, including its retail pharmacy stores and healthcare assets. The goal is to improve financial performance and boost profitability. 

The company has already implemented a $1 billion cost-saving strategy, which includes plans to close 160 VillageMD clinics.

Mary Langowski, head of Walgreens' US healthcare business, said, "We are laser-focused on being extremely disciplined around where we will focus, what we will do, and what we'll stop doing. We are streamlining how we operate and have already stopped certain activities that do not create near-term value."

Despite the challenges, Walgreens' US healthcare segment remains a bright spot. The segment, which includes VillageMD, Summit Health/CityMD, CareCentrix, Shields Health, and Walgreens Health, reported third-quarter revenue of $2.1 billion, a 7.6% increase from the previous year. 

"We are big believers in value-based healthcare. Pharmacy is the value-based healthcare provider in the ecosystem. As it relates to VillageMD and that model, we like that model and will continue to invest in it strategically," Wentworth  added.