New York (CNN) — Walgreens is set to close a substantial number of its roughly 8,600 locations across the United States as the company looks to reset the struggling pharmaceutical chain’s business.
The company didn’t announce a specific number of store closures, but it said Thursday that it is planning “significant” closures of underperforming stores across America as part of a multiyear optimization program.
CEO Tim Wentworth said in an interview with the Wall Street Journal that the store closures would make up a “meaningful percent” of the quarter-or-so locations that are underperforming. The closures would focus on locations that aren’t profitable, too close to each other or stores struggling with theft, Wentworth told the Journal.
Walgreens’ shares fell nearly 9% in premarket trading, which also announced during its earnings that it has slashed its full-year profit outlook.
“We continue to face a difficult operating environment, including persistent pressures on the US consumer and the impact of recent marketplace dynamics which have eroded pharmacy margins,” Wentworth said in a press release. “Our results and outlook reflect these headwinds.”
Sales rose 2.6% to $36.4 billion for the quarter. That might not “look unreasonable, but this is running below inflation and, across some segments of the business, represents a loss of market share,” Neil Saunders, managing director of GlobalData, said in a note.
Particularly concerning for Walgreens was its retail sales falling 4% for the quarter. But that isn’t surprising because it’s front-of-store struggles have been “exacerbated by the cost-of-living crisis which has seen customers curtailing the volume of products they buy and shopping around more for the best deals and bargains,” Saunders added.
Walgreens slashed prices on more than 1,000 items in May, following rivals in an effort to lure back inflation-weary shoppers turned off by high prices.
Major drugstore chains, including CVS and Rite Aid, have struggled in recent years because of declining profits from filling prescriptions. They’ve declined because of lower reimbursement rates for prescription drugs and new competition from Amazon.
The front end of drugstores, where they sell snacks and household staples, also face pressure from larger competitors, including Target and dollar stores.
Although drugstores benefited during the pandemic from people getting Covid-19 vaccines, fewer consumers are visiting stores to shop. Prescription volumes are also falling because people are getting fewer elective procedures.
GLP-1 drugs, which include Ozempic and Mounjaro to treat weight loss and diabetes hasn’t been a boon for the chain. Wentworth told the Journal it’s losing money on filling those prescriptions.
Pivoting the business model hasn’t helped, either. Walgreens will no longer have a majority stake in VillageMD, a primary care network that the chain once had major plans to open open full-service doctors’ offices in hundreds of its stores. Walgreens said the value of its ill-fated VillageMD merger has fallen so much, it was forced to take a massive $6 billion writedown on its balance sheet.
In the past few years, CVS has closed about 900 locations and Rite Aid, which entered bankruptcy in October, closed more than 100.
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