Pharma
Walgreens Boots Alliance: Profit Forecast Lowered, Store Closures Announced
The owner of Boots and Duane Reade sees declining margins due to stressed customers and lower prescription reimbursements.
![](https://images.prismic.io/eulerpool/0b501f91-a7ce-444e-865d-aef56dfba54f_Eulerpool-AlleAktien-Gewinneinbruch-bei-Walgreens-Boots-Alliance-Deutlicher-Ruckgang-Verzeichnet.jpeg?auto=false)
The stocks of Walgreens Boots Alliance fell to their lowest level in 27 years after the drugstore chain lowered its profit forecast and announced further store closures. Reasons for this include a challenging pharmacy business and financially strained US consumers.
Under the brands Walgreens and Duane Reade, the company operates more than 8,000 stores in the USA, its largest market. Additionally, Walgreens owns about 2,000 Boots pharmacies in the United Kingdom as well as locations in several other countries.
Pharmacies in the USA are under pressure from lower reimbursements for medications and reduced consumer spending, which is burdened by inflation. Walgreens pointed to increased discounts and theft on Thursday, which are affecting US retail margins.
In the US retail market for pharmacies, we have continued to experience pressure on the US consumer. Our customers have become increasingly selective and price-sensitive in their purchases," said CEO Tim Wentworth to analysts. He also indicated that a potential sale or IPO of Boots UK is off the table.
The company reported an adjusted net profit of $545 million for the third quarter, which ended in May, a decrease of 36.5 percent compared to $860 million in the previous year. Walgreens lowered its forecast for annual earnings per share by approximately 12 percent.
Walgreens shares, which had fallen by 45 percent over the course of the year by Wednesday, dropped by up to 25 percent on Thursday afternoon. The shares of competitor chain CVS fell by 4.7 percent.
Wentworth, a former health insurance expert, took the helm of Walgreens last October, replacing Rosalind Brewer, who had seen a significant decline in the stock price during her two and a half years in office.
Brewer was poached from Starbucks by Stefano Pessina, the CEO who founded Walgreens Boots Alliance and remains its largest shareholder.
We are at a point where the current pharmacy model is not sustainable, and the challenges in our operating environment require us to approach the market differently," said Wentworth.
Changes are inevitable" for the 25 percent of U.S. branches that did not contribute to Walgreens' operating profit, Wentworth told analysts, with a significant portion of them set to close in the next three years.
Manmohan Mahajan, Chief Financial Officer of Walgreens, said the company had already closed 2,000 locations in the last ten years.
Walgreens highlighted the contribution of Boots to the international division, particularly the growth in retail sales. Comparable retail sales increased by 6 percent during the reporting period, driven by beauty brands and a larger number of customers visiting the stores.
The Nottingham-based company has been fully owned by Walgreens since 2014. Speculations about the future ownership began in January when Wentworth stated that all strategic options would be considered to create sustainable long-term value for shareholders.
Walgreens had previously abandoned plans to sell the 175-year-old company, stating that although the interest was "significant," the bids did not reflect the potential value.
Wentworth said on Thursday: "Our review of Boots UK has shown that we have attractive options to unlock value in this business. Although we believe there is great interest in Boots at the right time, its growth, strategic strength, and cash flow remain important contributions to the company.
We remain committed to investing in Boots UK and finding innovative ways to realize the potential of this business," he added.