Oct 13, 2023 - Health

Walgreens shares jump on aggressive cost-cutting plan

Photo: Michael M. Santiago/Getty Images

Walgreens saw its share price jump Thursday after laying out aggressive plans to cut $1 billion in costs over the next year and close 60 VillageMD clinics.

Why it matters: The company has struggled to meet investor expectations and compete with CVS Health, Walmart and Amazon, placing much of its focus on the expansion of primary care.

The big picture: Walgreens lost $6.9 billion for the fiscal year that ended Aug. 31 — including a partially offset $6.8 billion charge for opioid-related claims and litigation.

  • Headwinds also include a weaker respiratory virus season and lower COVID-19 vaccine uptake, as well as the impact of a difficult economic environment for consumers, executives said.

What they're saying: "During the last six weeks, we have taken decisive actions to rightsize our cost structure," Walgreens interim CEO Ginger Graham said during the company call.

Between the lines: Company executives detailed a number of efforts they are taking to free up cash, including pulling back clinics from five underperforming markets, closing unprofitable stores and adjusting store operating hours based on local market trends.

  • They plan to reduce costs at headquarters and stop all nonessential projects. They are also requiring all remote workers to return to the office by the end of November.
  • Walgreens' shares rose 7% on the news, which also include plans to increase supply chain efficiencies through AI to more accurately forecast demand and optimize the company's transportation network.
  • Walgreens also rolled out a "perpetual pharmacy inventory system" at all 9,000 of its stores to help reduce excess inventory and free up working capital, they said. They are cutting back on slow-moving product categories.
  • The chain also brought online 11 micro-fulfillment centers three weeks ago to support more than 4,300 stores and fill over 2.3 million prescriptions each week across 29 states to free up staff.

Catch up quick: The pharmacy giant earlier this week named Tim Wentworth as its new CEO, starting Oct. 23. Wentworth is a former CEO of Express Scripts and most recently helped form Cigna's health services company Evernorth.

  • Wentworth told analysts and investors he's spent weeks talking with board members about the challenges facing the company.
  • "I see the opportunities before us to build on our pharmacy strength and our trusted brands we evolve health care and the customer experience to deliver better outcomes at a lower cost," he said.

One quick thing: The board has made no change in dividend policy, company officials said. Walgreens has one of the highest dividend yields in the S&P 500.

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