Jamie Spencer
Walgreens Reports Earnings Beat Amid Store Closures and Cost Cuts
Walgreens reported fiscal first-quarter results on Friday that surpassed Wall Street expectations, as the company undertakes cost-cutting measures, including the closure of underperforming stores, to navigate challenging market conditions. Despite the earnings beat, Walgreens maintained its fiscal 2025 adjusted earnings guidance.
First-quarter results surpass expectations
For the quarter ending November 30, Walgreens reported the following results compared to analysts’ expectations from LSEG:
- Earnings per share (adjusted): 51 cents vs. 37 cents expected.
- Revenue: $39.46 billion vs. $37.36 billion expected.
Revenue rose 7.5% year-over-year, driven by growth across Walgreens’ three business segments. The U.S. retail pharmacy division alone generated $30.87 billion in sales, a 6.6% increase from the previous year.
The company’s shares surged more than 20% in morning trading following the announcement.
Focus on U.S. retail pharmacy stabilization
CEO Tim Wentworth emphasized that stabilizing Walgreens’ U.S. retail pharmacy business is the cornerstone of its longer-term turnaround strategy. The division, which includes prescription and over-the-counter medications, health and wellness products, and beauty and personal care items, saw a 10.4% rise in pharmacy sales and a 12.7% increase in comparable pharmacy sales, partly driven by price inflation in brand medications.
Wentworth acknowledged persistent challenges in consumer discretionary spending due to inflation and higher interest rates, which have impacted retail performance. However, he noted “early green shoots” in the company’s retail strategy, while cautioning that substantial work remains.
Store closures and operational changes
Walgreens plans to close 1,200 underperforming stores over the next three years, with 500 closures scheduled for fiscal 2025. The company currently operates approximately 8,500 retail pharmacy locations across the U.S.
Wentworth announced that Walgreens will “significantly ramp the pace of our store closures from the first-quarter level.” These closures aim to address operating losses, which contributed to a net loss of $265 million for the quarter, compared to a $67 million net loss in the same period last year.
To improve efficiency and customer experience, Walgreens is refining its labor forecasting, allocation, and scheduling processes. A new scheduling model, launching in 200 locations in January, will align staffing levels with store-specific demand patterns while considering employee availability and preferences.
Challenges and opportunities
Wentworth noted that the deteriorating consumer discretionary spending environment remains a headwind. Shoppers continue to seek value due to inflationary pressures and higher borrowing costs. Despite these challenges, the company is optimistic about its strategic initiatives to enhance customer and employee satisfaction.
The company is also rumored to be in talks with private equity firm Sycamore Partners regarding a potential sale, highlighting the broader context of its ongoing transformation.
Conclusion
Walgreens’ strong fiscal first-quarter performance underscores progress in its turnaround efforts, particularly within its U.S. retail pharmacy division. However, the company faces significant challenges in stabilizing its consumer retail business amid economic pressures. With cost-cutting measures, operational changes, and strategic investments, Walgreens aims to position itself for sustained growth in the years ahead.
