Editor's Note: This story has been updated following Walgreens' earnings call Tuesday morning
Walgreens reported a loss of $3 billion in the fourth quarter and plans to close 1,200 stores over the next three years as part of the retail drugstore chain's ongoing turnaround strategy amid a rocky fiscal 2024.
The company will close 500 stores in fiscal 2025, which began September 1 of this year, as it works to improve its cash flow. The closure "will be immediately accretive to adjusted EPS and free cash flow," the company said in its quarterly earnings report released Tuesday.
Out of 8,700 stores, about 6,000 are profitable, Walgreens Boots Alliance CEO Tim Wentworth told investors during the company’s earnings call Tuesday. “We intend to invest in these stores over the next several years. Part of the funding for this investment will come from accelerating the closure of underperforming stores. 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,” he said.
Employees who work in shuttered stores will be redeployed to other store locations, he noted.
The company is focused on stabilizing its core retail pharmacy business, honing its retail strategy and improving operating cash flow and net debt position, Wentworth said on the call.
But, like other retail pharmacies, Walgreens is facing significant headwinds as retail sales have slowed from softer consumer spending along with pharmacy reimbursement pressure and hefty losses from its push into primary care with VillageMD.
The company's shares jumped 16% Tuesday morning as it's fourth-quarter earnings still beat analysts’ expectations.
The company reported a net loss of $3 billion, or a loss of $3.48 per share, in its fiscal fourth quarter ended August 31 compared to a net loss of $180 million, or 21 cents per share, during the same quarter a year ago, Walgreens reported Tuesday morning.
Walgreens said the loss was "primarily driven by a higher operating loss, a $2.3 billion non-cash charge for valuation allowance on deferred tax assets primarily related to opioid liabilities recognized in prior periods and a non-cash impairment charge related to equity investment in China."
Walgreens' fourth-quarter sales and profit beat Wall Street's expectations, as the company makes progress in its cost-cutting efforts.
The company's adjusted earnings per share in the fourth quarter was 39 cents and revenue was up 6% to reach $37.5 billion. Wall Street analysts expected earnings per share of 36 cents and revenue of $35.76 billion, according to a survey of analysts by LSEG.
In the fourth quarter, the U.S. retail pharmacy segment brought in sales of $29.5 billion, up 6.5% from Q4 2023. Pharmacy sales grew 9.6%. Total prescriptions filled in the quarter, including immunizations, adjusted to 30-day equivalents, increased 1.7% to 302 million.
Retail sales fell 3.5% during the fourth quarter, reflecting a challenging retail environment and continued channel shift.
The international segment had fourth quarter sales of $6 billion, up 3.2% percent from a year ago.
The company reported net cash provided by operating activities was $1.3 billion in the fourth quarter and free cash flow was $1.1 billion, a $537 million increase compared with the year-ago quarter.
Walgreens betting on growth areas within healthcare business
The U.S. healthcare segment saw strong revenue growth in Q4, up 7% to reach $2.1 billion. VillageMD revenue grew 7%, bringing in $1.5 billion, according to chief financial officer Manmohan Mahajan.
Within its healthcare business, Shields Health Solutions, its specialty pharmacy segment, grew 28% in Q4, driven by growth within existing partnerships.
Walgreens management touted that the U.S. healthcare segment achieved an adjusted EBITDA increase of $442 million in fiscal 2024.
For the full year, healthcare services generated $8.3 billion in sales. For fiscal year 2025, the company is projecting the healthcare services segment to bring in $8.6 billion to $9 billion in sales.
Mary Langowski, who was tapped to lead Walgreens' U.S. healthcare business back in February, told investors and analysts on the call that Walgreens has spent the last six months exiting "non-material programs" that the company didn't think would generate growth over the near-term.
"The U.S. healthcare business is really focused on a disciplined growth strategy. Now we're focused on two primary things, growth of our current core and adjacent assets, specialty pharmacy Shields, data analytics, our pharma services. And then secondly, doing more of what we do best, which is really built on our core infrastructure and reorienting to the pharmacy business, so reaching, engaging and activating patients and providing services to payers and pharma," Langowski said.
However, operating losses for the healthcare service segment grew to $14.2 billion for fiscal year 2024 compared to an operating loss of $1.7 billion in 2023, according to the earnings report. The company reported a goodwill impairment of $12.7 billion in its U.S. healthcare business for the full fiscal year.
In the fourth quarter, the healthcare services segment posted an operating loss of $526 million, up considerably from an operating loss of $294 million in Q4 2023, reflecting a $332 million non-cash goodwill impairment charge related to CareCentrix, its home care business.
The company continues to explore strategic options for its VillageMD primary care business. In a regulatory filing back in August, the company said it was exploring options including a sale of all or part of the VillageMD businesses, possible restructuring options and other strategic opportunities, according to the filing.
The VillageMD business is not yet profitable and its waning value contributed to Walgreen's hefty $6 billion loss in the second quarter.
Wentworth told investors during the earnings call Tuesday that Walgreens is focused on monetizing “non-core assets” to generate cash, chief among these is VillageMD.
"The process of getting there has been longer than we would have hoped," he noted.
“Our goal is to monetize it, but to do it without destroying value unnecessarily. And so from that standpoint, you know, it has been a longer process. I wish I could have wiggled my nose and just made it happen, believe me, because we've declared it's not a crucial part of our future. We also believe it's a great business and will do well on its own. But we're going to be very methodical and very appropriate in trying to preserve value,” Wentworth said.
Earlier in the earnings call, Wentworth said, "While our plans for this [VillageMD] investment may take several different forms in all scenarios related to VillageMD, we are committed to redeploying any proceeds to reduce our net debt and improve the health of our balance sheet."
Walgreens making headway on cost-cutting initiatives
Wentworth and Mahajan told investors that Walgreens is making significant progress on its cost-saving strategy. The company exceeded its fiscal 2024 targets by cutting costs by more than $1 billion, reducing capital expenditures by more than $700 million and realizing over $600 million in benefits from working capital initiatives, Wentworth told investors and analysts during the Q4 earnings call.
The company also touted a net debt reduction of $1.9 billion and lease obligations reduction of $1.2 billion for the year, Mahajan said.
In fiscal 2025, Walgreens expects to realize $500 million in working capital initiatives and $150 million in further capex reduction, he said.
For full-year fiscal 2024, Walgreens’ sales grew 6.2% to $147.7 billion, but the company racked up $8.6 million in losses, an increase of 180% compared to 2023. The company said this was primarily driven by a “higher operating loss, a $2.2 billion non-cash charge for valuation allowance on certain deferred tax assets and a $717 million after-tax charge for fair value adjustments on variable prepaid forward derivatives related to the monetization of Cencora shares.
Fiscal 2024 loss per share was $10.01, which includes a non-cash impairment related to VillageMD goodwill. Adjusted earnings were $2.88 for the year, down 28% from a year ago.
Walgreens ended the year with $3.2 billion in cash and cash equivalents, Mahajan said.
“Our financial results in the fiscal fourth quarter and full year 2024 reflected our disciplined execution on cost management, working capital initiatives and capex reduction. In fiscal 2025, we are focusing on stabilizing the retail pharmacy by optimizing our 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 said.
“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," Wentworth said.
For fiscal 2025, Walgreens Boots Alliance expects adjusted EPS of $1.40 to $1.80. The company also is projecting revenue in the range of $147 billion to $151 billion.