Walgreens Boots Alliance Inc. executives will close about 9 percent of their VillageMD clinics and trim $600 million in capital spending in the coming year as part of broader plan to get its financial performance back on track.
Details of the spending cuts came a day after Illinois-based Walgreens Boots announced the hiring of Tim Wentworth to be its next CEO, effective later this month. Wentworth was the founding CEO of Cigna’s Evernorth health services unit, which he led until December 2021. Before that, he was president and CEO of Express Scripts. He will step into the CEO seat less than two months after Roz Brewer left the company less than three years into her tenure.
Building a healthcare services organization was one of Brewer’s main strategies and Walgreens Boots has spent billions to build a portfolio that now includes care clinics VillageMD and Summit Health, specialty pharmacy Shields Health Solutions, home health venture CareCentrix and a clinical trial business launched last year. The goal is to connect those services and others with consumers already using Walgreens’ pharmacies or with the company’s various health plan and pharmaceutical partners.
The healthcare group finished Walgreens’ most recent fiscal year with $6.6 billion in sales and an annual revenue run rate of nearly $8 billion. But losses have been steeper than expected—the adjusted EBITDA loss in the 12 months ended Aug. 31 was $376 million—as spending on new VillageMD locations and costs related to the integration of Summit ballooned.
Hence the planned store closures: Speaking to analysts on the heels of Walgreens’ fiscal fourth-quarter earnings report, healthcare group president John Driscoll said his team will close about 60 clinics in five VillageMD markets by next summer. Today, VillageMD has about 680 locations in 26 cities.
“Our long-term focus will be on achieving density in those regions with the greatest potential to drive future profitability growth and where we can best serve patients with our consolidated set of assets,” Driscoll said Oct. 12.
The plans to retreat from five markets—the company isn’t yet saying where they are—build on comments Driscoll made earlier this year about focusing VillageMD’s growth efforts on store clusters that were showing better performance. They will contribute to plans that aim to have Walgreens’ healthcare group just about break even in the current fiscal year on sales of $8.3 billion to $8.8 billion.
“We are very confident in our ability to perform in ’24,” Driscoll said. “We’ve got the revenues. Now we’re going to get at, more effectively, some of the embedded profits.”
Walgreens Boots as a whole posted a fiscal Q4 net loss of $208 million on sales of $35.4 billion. Executives said a big year-over-year drop in COVID-19 vaccine and testing volumes and a generally mild respiratory illness season hurt their core retail pharmacy business. In addition to cutting $600 million in capex plans, interim CEO Ginger Graham said a range of spending cuts—most of them at retail pharmacies, including by trimming some stores’ opening hours—should total $1 billion in the coming months and begin to kick in in earnest starting in the company’s second fiscal quarter.
Shares of Walgreens (Ticker: WBA) rose 7 percent to $24.19 on heavy trading volume after the company’s leaders reported their results. They are, however, still down more than 30 percent over the past six months, a slide that has trimmed the company’s market capitalization to about $21 billion.
