Major Pharmacy Axes Underperforming Stores, Shares Tumble Amid Cost-Cutting Strategy

Clear Facts

• Walgreens announced on June 21st that it will be closing a significant number of its pharmacies in a bid to cut costs and eliminate underperforming stores.
• Shares of Walgreens took a significant hit, dropping by over 20% after the company’s fiscal third quarter earnings fell short of expectations.
• Only 75% of Walgreens’ stores are responsible for all of its adjusted operating income, suggesting a quarter of its stores are underperforming.

In a shocking wave felt across the retail industry, Walgreens, America’s largest pharmacy chain, revealed its plan to close a considerable portion of its pharmacies. This move is part of a cost-reduction strategy that will see the closure of underperforming stores.

On Thursday, Walgreens’ shares plummeted, taking a more than 20% hit. This came after the company’s fiscal third-quarter earnings failed to meet expectations. The decline in Walgreens’ value has been dramatic, with the retail giant losing 80% of its value in less than five years.

“The current pharmacy model is not sustainable,” Walgreens CEO Tim Wentworth said during an earnings call on Thursday. He further conveyed his concern about the strength of consumer spending. “We assumed … in the second half that the consumer would get somewhat stronger, but that is not the case,” Wentworth said.

Wentworth underscored his observations about consumer reaction to prices, stating, “the consumer is absolutely stunned by the absolute prices of things, and the fact that some of them may not be inflating doesn’t actually change their resistance to the current pricing. So we’ve had to get really keen, particularly in discretionary things.”

The staggering revelation that only 75% of the company’s stores produce 100% of its adjusted operating income paints a grim picture for the underperforming quarter. Doubts have been cast on the future of these underperforming stores.

Currently, the exact number and the locations of the stores to be closed remain uncertain. However, if Walgreens decides to shut down the 25% of stores that are underperforming, it could lead to approximately 2,150 closures. This dramatic decision could reshape the landscape of American retail pharmacy, affecting both employment and consumer access.

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