Walgreens to close 150 stores as COVID-19 demand drops, profit declines .. no one is safe from an economic slowdown that might cut deeper than people expected .. .this suggests a retailer that’s looking to hunker down because of the worsening economy. The rest of the industry should take note.
Closing stores is a fact of life for retailers. But some closings should worry consumers and investors more than others.
Take Walgreens Boots Alliance (WBA) – Get Free Report. The pharmacy chain just announced plans to close 150 locations in the United States this year.
In its recent third quarter earnings announcement, Walgreens significantly reduced its annual profit guidance, in part because of lower Covid-19 vaccine and testing volumes.
That certainly seems normal since the Biden Administration officially ended the country’s national emergency response to the pandemic in April. Though Covid is still very much around, deaths and hospitalization rates have significantly fallen from 2020.
But Walgreens also warned that the economy is perhaps weaker than we assumed. Inflation, combined with reduced government stimulus and the resumption of student loan payments, is prompting consumers to cut spending.
“We have seen changing market trends that have consumers prioritizing value in response to a more uncertain and challenging economic environment,” CEO Roz Brewer told analysts during a conference call.
Weaker Consumer Demand
Of course, all retailers have been saying something like that. The general consensus is that consumers are buying less “discretionary” merchandise like apparel, electronics, and home goods. That’s why retailers like Target Corporation (TGT) – Get Free Report, Best Buy Company Inc. (BBY) – Get Free Report, and Macy’s Inc. (M) – Get Free Report are facing some tough challenges for the rest of the year.
But Walgreens is neither a department store or electronics chain. It doesn’t sell widescreen televisions or designer tops. As a pharmacy chain, Walgreens primarily sells the stuff that people depend on for daily life, the merchandise that is supposedly more immune to inflation.
Therefore, Walgreens’ take on consumer demand should alarm retailers — that no one is safe from an economic slowdown that might cut deeper than people expected.
In response, Walgreens has aggressively shifted its strategic posture, from a company that rapidly grew during the pandemic to a retailer that wants to cut costs and return cash to shareholders.
A Lot More Room to Cut
The 150 store closings is likely just a start. The company wants to trim another $800 million from its balance sheet, bringing its target savings this year to $4.1 billion from its previous goal of $3.5 billion. And in a rather ominous statement in its investor presentation, the chain said there is a “robust pipeline of additional opportunities.”
Walgreens has already laid off corporate workers and reduced store hours. In the conference call, Brewer said Walgreens cut hours at 500 stores in the quarter, bringing the total number of stores with fewer hours to 1,100. Yet that figure represents only 12% of the nearly 9,000 stores the company operates in the United States.
In other words, Walgreens has plenty more room to close stores and cut hours.
Moreover, instead of using shareholder cash to expand, the company now talks of “disciplined, returns-based investment” in its core business, “portfolio simplification,” and repurchasing shares and boosting the dividend.
All this suggests a retailer that’s looking to hunker down because of the worsening economy. The rest of the industry should take note.
By FOX 32 News
Published June 30, 2023 5:09PM
CHICAGO – Walgreens, one of the largest retail pharmacy chains, is set to close 150 stores by next summer due to increased shoplifting and sluggish sales.
The CEO of Walgreens has attributed part of the problem to the decreased demand for COVID-19 vaccines and tests.
Walgreens reported a significant 59% profit drop during the third quarter, reflecting the challenges it faces in the current market.
Additionally, Walgreens plans to cut 300 sister stores in the UK.
The retail giant did not say which stores would be shutting down.
Walgreens reported a significant 59% profit drop during the third quarter, reflecting the challenges it faces in the current market.
New York CNN — Walgreens expects to close 150 locations in the United States and 300 locations in the United Kingdom, Walgreens Boots Alliance CFO James Kehoe said in the company’s earnings call this week.
The pharmacy chain reported lower earnings on Tuesday compared to the same quarter last year – $118 million, or 14 cents a share, compared to $289 million, or 33 cents a share, a year ago. The company is facing muted consumer spending and a pullback in demand for Covid vaccines.
CEO Rosalind Brewer said the company was increasing its cost-savings efforts to $4.1 billion and “taking immediate actions to optimize profitability for our US healthcare segment.”
Walgreens profit tumbles, slashes guidance amid significant drop in Covid vaccine demand
Kehoe told analysts the company will have saved $3.3 billion by the end of this year, and is projecting to save “at least” $800 million in 2024. These store closures are part of its cost-cutting effort.
The chain operates almost 9,000 stores in the United States and expects to close the 150 US locations by the end of its next fiscal year, Aug 31, 2024, a spokesperson said.
Kehoe said the company also eliminated more than 500 roles, or around 10% of its corporate and US office support workforce. Technology and its plans to build the “pharmacy of the future” will further drive savings, he said.
“We are optimizing the model through our micro fulfillment centers, tech-enabled centralization of in-store activities and telepharmacy solutions,” Kehoe said.
Walgreens (WBA) did not specify which locations are closing and did not immediately respond to CNN’s request for comment.
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