Walgreens Boots Alliance shares plunged to the lowest levels in nearly three decades in early Thursday trading, potentially shedding more than $5 billion in value, after slashing its full-year profit forecast and unveiling plans for a "significant multiyear" program of store closures.
Walgreens (WBA) , which is deep in the throes of a major cost-cutting and business turnaround plan under Chief Executive Tim Wentworth, has slashed its regular dividend and reduced global headcount amid stubbornly high inflation and cutbacks in prescription reimbursements.
It's also closed around 1,000 stores, with nearly 500 U.K. outlets operating under the Boots pharmacy brand axed as of February of this year, and a further 625 locations around the U.S. also shuttered.
The group, which was removed from the Dow Jones Industrial Average earlier this year, said it would likely trim its holding in stand-alone health-care provider Village MD and focus instead on its core retail pharmacy business, which it said is "central to the future of health care."
That will include a "significant multiyear footprint optimization program" for underperforming U.S. outlets, Walgreens said.
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"We continue to face a difficult operating environment, including persistent pressures on the U.S. consumer and the impact of recent marketplace dynamics which have eroded pharmacy margins," said CEO Wentworth, who joined the company in October. "Our results and outlook reflect these headwinds, despite solid performance in both our International and U.S. Healthcare segments."
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For Walgreens' fiscal third quarter ended in May, the group posted earnings of 63 cents a share, down 37% from the year-earlier period and shy of Wall Street's 68- cent consensus forecast.
Group revenue of $36.4 billion topped forecasts, with U.S. retail pharmacy sales up 2.3% to $28.5 billion.
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"Retail sales decreased 4% and comparable retail sales decreased 2.3% compared with the year-ago quarter, reflecting a challenging retail environment and continued channel shift," Walgreens said. "Retail margin was negatively affected by increased promotional activity and higher shrink levels."
Walgreens also said full-year profit would likely come in between $2.80 to $2.95 a share, a 40-cent reduction from its March forecast.
Walgreen shares were last marked 24.9% lower in mid-day Thursday trading to change hands at $11.76, the lowest in more than two decades and a move that extends the stock's 2024 decline to around 56%.
“I think the share price move is deserved," said Jeff Jonas, portfolio manager at Gabelli Funds. "The results were definitely worse than expected in the US pharmacy segment, hurt by a weak consumer and continued reimbursement pressure. I actually thought the international business and US healthcare services businesses were fine."
"I’m not sure if they’re going to give more detail on their restructuring plan yet, I think they want a couple more months to finalize which stores they’re going to close and which assets they’re going to sell (and maybe just announce the asset sales when they’re finalized, not in advance)," he added.
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