Walgreens announced its plan to close around 1,200 U.S stores over the next three years, including around 500 closures in fiscal 2025, as the drug store chain is facing a challenging U.S. retail environment amid increasing competition.
The move, which was announced while reporting a significantly wider net loss in its fourth quarter, is expected to be immediately accretive to adjusted earnings per share and free cash flow. The company also projects growth in the healthcare segment, and in the international segment.
Walgreens said the expected store closures in future includes around 300 stores previously approved for closures under the Transformational Cost Management Program.
In its fourth-quarter conference call, Tim Wentworth, chief executive officer, said the expanded footprint optimization program aims to reduce the fixed costs associated with these stores. He added that the firm intends to follow its historic practice to re-deploy the majority of the workforce in those stores that are being closed.
Wentworth said, Executing on this program will realign our footprint to a healthier store base that we believe will enable us to respond more dynamically to shifts in consumer behavior and buying preferences. Our ability to respond to a changing environment needs to improve and was a critical objective of our strategic review. We intend to close this competitive gap with some of our peers who have invested in similar capabilities over the past several years.
The company noted that out of its over 8,000 stores in total, the majority, around 6,000 stores, are profitable, and that the firm intends to invest in these stores over the next several years.
Walgreens is prioritizing investment in those stores that should be the recipient of the scripts, merchandise, and foot traffic from the stores that are closing.
Regarding the remaining underperforming stores, after deciding to close the 1,200 stores, the company said it continues to evaluate 800 stores, and is focused on improving their operating performance and cash flows.
Wentworth further said that in fiscal 2025, the firm is focusing on stabilizing the retail pharmacy by optimizing footprint, controlling operating costs, improving cash flow, and continuing to address reimbursement models to support dispensing margins and preserve patient access for the future.
Wentworth added, 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.
Walgreens shares on Tuesdays regular trading gained around 16 percent after its fourth-quarter adjusted earnings and sales beat the market estimates.
Meanwhile, the stock is trading down around 1 percent in Wednesdays pre-market activity on the Nasdaq.