Walgreens Boots Alliance Inc. (NASDAQ:WBA) announced plans to close 1,200 U.S. stores over the next three years in an effort to stabilize its business and reverse ongoing financial struggles. These Walgreens store closures are part of a larger turnaround strategy aimed at improving profitability, which comes after the company reported a significant $3 billion quarterly loss.

Impact of Walgreens Store Closures on Earnings and Operations

In the 2024 fiscal year, Walgreens anticipates closing 500 stores, a move it expects will support adjusted earnings and boost free cash flow. Despite the major cutbacks, the company did not specify which locations would be impacted by the closures. With approximately 8,500 stores in the U.S., this reduction represents a significant shift in Walgreens’ retail footprint. However, all the store closures are expected to be confined to the U.S. market.

CEO Tim Wentworth emphasized that fiscal 2025 will be a critical “rebasing year” for Walgreens, signaling that this period of change is essential for the long-term success of the company. He added, “This turnaround will take time, but we are confident it will yield significant financial and consumer benefits over the long term.” The Walgreens store closures align with these goals, as the company continues to face challenges from rising operational costs and tightening prescription reimbursements.

Competing with Retail Giants and Adjusting to Market Conditions

The pressure on Walgreens has been mounting, not only from operational difficulties but also from competition with major retail giants like Amazon (NASDAQ:AMZN), Walmart (NYSE:WMT), and Target (NYSE:TGT). These competitors, along with shifting consumer habits, have led Walgreens to rethink its business strategy. While the store closures are aimed at improving profitability, the company must also address competition in the healthcare space.

Other pharmacy chains have also adjusted to the changing landscape. CVS Health Corp. (NYSE:CVS) is nearing the end of a three-year plan to close 900 stores, while Rite Aid Corp. (NYSE:RAD) recently emerged from bankruptcy after trimming its store count to around 1,300. Walgreens’ decision to scale back its retail presence reflects an industry-wide shift driven by increased competition and operational challenges.

Shifting Away from Healthcare Expansion

In addition to reducing its retail footprint, Walgreens is reconsidering its previous plans to expand into primary healthcare services. Under former CEO Rosalind Brewer, Walgreens embarked on an aggressive strategy to add VillageMD clinics alongside its retail stores. However, this expansion has since been dialed back.

In August 2024, Walgreens revealed that it was reviewing its U.S. healthcare business and might sell all or part of its VillageMD clinic business. The decision came less than two years after announcing plans to spend billions on expanding its healthcare offerings, highlighting the company’s ongoing efforts to refocus its resources on core operations and profitability.

Walgreens’ Financial Outlook and Challenges Ahead

Walgreens entered the 2024 fiscal year by cutting its dividend to free up cash for business growth. Despite these efforts, the company slashed its earnings forecast for the year. In the final quarter of fiscal 2024, Walgreens reported a $3 billion net loss, driven by a weaker U.S. retail and pharmacy performance.

The company also faced hefty charges from opioid litigation settlements and an equity investment in China, further complicating its financial picture. Despite these challenges, Walgreens still managed to exceed Wall Street expectations, with analysts predicting earnings of 36 cents per share on $35.75 billion in revenue for the fourth quarter, according to FactSet.

For fiscal 2025, Walgreens has set a cautious outlook, expecting adjusted earnings to range between $1.40 and $1.80 per share. Growth in the company’s U.S. healthcare and international businesses may help offset the decline in its U.S. retail pharmacy segment.

What Lies Ahead for Walgreens?

While the Walgreens store closures are expected to provide some immediate financial relief, questions remain about the company’s long-term strategy. Analyst Michael Cherny from Leerink Partners noted that while the store closures and fiscal forecast weren’t as dire as expected, many uncertainties remain about Walgreens’ path forward under CEO Tim Wentworth.

Walgreens shares saw a nearly 4% increase following the announcement, though the stock has lost two-thirds of its value in 2024. With a challenging year ahead, Walgreens is focused on restructuring its U.S. operations to remain competitive in the evolving retail landscape.

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