By 2027, Walgreens plans to shut down 1,200 stores, surpassing earnings expectations.

• Wall Street's expectations were surpassed by Walgreens' fiscal fourth-quarter sales and profit, which resulted from the company's cost-cutting efforts.
• The retail drugstore chain announced plans to shut down approximately 1,200 stores in the next three years, with 500 closures happening in fiscal 2025.
• Walgreens' fiscal 2024 was marked by challenges related to pharmacy reimbursement pressure, softer consumer spending, and difficulties in its push into primary care, resulting in a rocky financial year.

The company reported higher-than-expected fiscal fourth-quarter sales and adjusted profit on Tuesday, while also reducing costs in an effort to improve its financial performance.

The retail drugstore chain announced plans to close approximately 1,200 stores over the next three years, with 500 closures occurring in fiscal 2025 alone. These closures will be immediately beneficial to the company's adjusted earnings and free cash flow.

Approximately 2,200 of Walgreens' 8,700 US locations are reportedly unprofitable.

According to Walgreens CEO Tim Wentworth, the company's closures will provide a "healthier store base" and allow it to respond to changes in consumer behavior and preferences. He stated that Walgreens aims to hire the majority of the affected workforce, although the exact number of employees who may lose their jobs is uncertain.

The company's shares closed more than 15% higher on Tuesday.

Despite facing challenges such as pharmacy reimbursement pressure, softer consumer spending, and difficulties related to its push into primary care, Walgreens announced on Tuesday that it had surpassed its target of cutting $1 billion in costs during fiscal 2024. The company achieved this by shuttering underperforming stores, laying off employees, and implementing artificial intelligence to streamline its supply chain.

During the call, Walgreens CFO Manmohan Mahajan stated that most of the benefits of the cost cuts were experienced in the company's U.S. retail pharmacy segment, Walgreens.

Walgreens announced on Tuesday that it plans to close a "significant" number of underperforming stores by 2027, providing an estimate of the exact number of locations that will be shuttered.

Based on a survey of analysts by LSEG, Walgreens' three-month performance ended Aug. 31 exceeded Wall Street's expectations.

• Earnings per share: 39 cents adjusted vs. 36 cents expected
• Revenue: $37.55 billion vs. $35.76 billion expected

In the previous quarter, Walgreens recorded sales of $37.55 billion, which was a 6% increase compared to the same period in the previous year.

The company's net loss for the fiscal fourth quarter was $3 billion, or $3.48 per share, due to a valuation allowance that reduced its deferred tax assets related to opioid settlements.

In comparison to a net loss of $180 million, or 21 cents per share, for the previous year, the current period's financial results show improvement.

The adjusted earnings for the quarter were 39 cents per share.

Nearly a year after taking over, Wentworth stated in a release that the fourth-quarter and full fiscal-year results demonstrated our successful management of costs, working capital, and capital expenditures.

The company's guidance for fiscal 2025 was in line with analysts' expectations. Walgreens anticipates growth in its U.S. health-care and international segments, but expects a decline in its retail pharmacy segment.

Walgreens aims to enhance its pharmacy business margins through a "multi-year process of redefining our partnership" with pharmacy benefit managers, who negotiate drug rebates on behalf of health plans and compensate pharmacies for prescription drugs, as stated by Wentworth during the call.

LSEG reports that analysts project an adjusted profit of $1.75 per share for Walgreens in the upcoming fiscal year, with the company anticipating an adjusted earnings per share range of $1.40 to $1.80.

Wall Street analysts predict sales of $147.3 billion for the company, with revenue estimated to be between $147 billion to $151 billion.

Growth across all three business units

Walgreens reported growth across its three business divisions in the fiscal fourth quarter.

The revenue of the company's U.S. health-care division increased by 7.1% year-over-year, reaching $2.11 billion.

According to StreetAccount's estimates, analysts had predicted sales of $2.10 billion.

Shields Health Solutions experienced a 27.8% increase in sales due to growth within existing partnerships, contributing to the expansion of primary-care provider VillageMD.

Pharmacies that specialize in delivering medications with specific handling, storage, and distribution requirements are typically designed for patients with complex conditions such as cancer and rheumatoid arthritis.

In the fiscal second quarter, Walgreens recorded a steep net loss due to a nearly $6 billion charge related to the decline in value of its investment in VillageMD. The company announced in August that it is considering selling the provider.

In the fiscal fourth quarter, Walgreens' U.S. retail pharmacy segment recorded $29.47 billion in sales, representing a 6.5% increase from the previous year. This was higher than the analysts' forecast of $28.09 billion, as per StreetAccount's estimates.

The company's drugstores are operated by that segment, which offers a range of products including prescription and nonprescription drugs, health and wellness items, beauty products, personal care items, and food products.

Pharmacy sales at Walgreens for the quarter increased by 9.6%, with a 11.7% rise in comparable sales compared to the previous year, resulting from factors such as brand medication price inflation.

In the quarter, the total number of prescriptions filled, including vaccines, was 302 million, which represents a 1.7% increase from the same period last year. However, the company noted that declining reimbursement rates for prescription drugs negatively impacted their profit margins.

Retail sales decreased by 3.5% compared to the previous quarter, while comparable retail sales decreased by 1.7%. The company attributed the decline to a challenging retail environment, along with other factors.

In the fiscal fourth quarter, Walgreens' international unit, which operates over 3,000 retail stores outside the US, generated $5.97 billion in sales, representing a 3.2% increase from the previous year.

According to StreetAccount, analysts predicted a revenue of $5.81 billion for the period.

Sales at Boots, the U.K.-based drugstore chain, rose by 2.3%.