Just a few years after it decided to go all in on health care services, Walgreens Boots Alliance (Nasdaq: WBA) is largely returning to its roots. It also plans to close as many as 1,200 retail stores in the next three years amid a financial downturn.
On a Tuesday earnings call, Walgreens CEO Tim Wenworth – who took over as the company’s chief leader in October of last year – said the company would be “reorienting” its business to focus on retail pharmacy.
“WBA is reorienting to its legacy strength as a retail pharmacy-led company,” Wentworth said. “This reorientation allows us to leverage our key strategic assets of consumer trust, convenience and relevance. Our position of trust stems from the millions of face-to-face interactions our consumers have with our pharmacy personnel every day, and we will continue to take actions now – and for the long term – to be the first choice for retail pharmacy and health services. Having earned our consumers’ trust – indeed, our reason to exist – we also want to be accessible and convenient, but we need to be appropriately sized.”
Wentworth said that of Walgreens’ over 8,000 stores, around 6,000 are profitable. With that in mind, and in order to be “appropriately sized,” the company is closing a majority of the stores that are not profitable.
That is part of an effort to balance its budget sheet, too. Its reorientation to retail pharmacy follows a strategic review of assets, which took place earlier this year after Wentworth took the helm.
Walgreens has poured over $6 billion into the home- and community-focused primary care provider VillageMD, but has recently reduced the latter’s physical footprint. VillageMD is a part of Walgreens’ U.S. Healthcare segment, which also includes the post-acute care platform CareCentrix.
While health care services and the U.S. Healthcare segment were emphasized as priorities moving forward in 2021 and 2022, Walgreens now appears to be moving away from that – for the most part.
“We believe our reorientation to retail pharmacy has a bright future,” Wentworth said. “We’re engaging in a multi-year program with a long-term goal of an appropriately sized and well positioned fleet of stores, and an industry-leading customer experience in both retail and pharmacy across consumer channels. And we continue to believe that the adjacent strategic businesses in which we’ve invested can incrementally contribute to value creation over the longer term.”
Wentworth also called VillageMD “not a crucial part of the business moving forward.”
Walgreens’ peer, CVS Health (NYSE: CVS), has also experienced financial turbulence of late, after heavily investing in health care services over the last few years. While Walgreens has VillageMD and CareCentrix, CVS Health has Oak Street Health and the home-focused, value-based care platform Signify Health.
Overall, the strategic decision to focus more on health care services after the height of the COVID-19 pandemic has not gone smoothly for either company.
“Many of our actions across this turnaround will take time, but I am confident that we have the right team, the right focus and the right strategy,” Wentworth said.
Overall, Walgreens’ fourth quarter sales increased 6% year over year to $37.5 billion. Fourth quarter operating losses, however, totaled $978 million.
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