The company released its fourth quarter earnings and financial outlook for 2024.
Walgreens plans to shut down 60 VillageMD clinics and exit five markets next year in an attempt to cut at least $1 billion in costs as it pivots in strategy with a new CEO.
Two days after naming Tim Wentworth CEO, the drugstore chain released its fourth quarter earnings report, showing a net loss of $3.1 billion for the year, compared to net earnings of $4.3 billion for the 2022.
"Our performance this year has not reflected WBA's strong assets, brand legacy, or our commitment to our customers and patients. In just six weeks, we have taken a number of steps to align our cost structure with our business performance, including planned cost reductions of at least $1 billion, and lowered capital expenditures by approximately $600 million," interim CEO Ginger Graham said in the release. "We anticipate seeing the impact of these actions in fiscal 2024, beginning in the second quarter."
Graham also said the company is "intently focused on accelerating our profitability in the U.S. Healthcare segment," which will be helped by the closing of 60 underperforming VillageMD clinics in 2024, Walgreens leadership revealed on a call with investors.
The U.S. Healthcare division consists of primary care provider VillageMD, at-home care provider CareCentrix, specialty pharmacy Shields Health, and Walgreens Health.
While pro forma sales for the quarter grew 17% for VillageMD, 24% for CareCentrix, and 29% for Shields, the unit as a whole reported an adjusted operating loss of $83 million.
"While we have made progress on the build-out of our healthcare business, we are not satisfied with the near-term returns on our investments," John Driscoll, president of U.S. Healthcare, said on the call. "We will continue to grow in 2024, but with a renewed focus on more profitable growth."
He added: "VillageMD, Summit Health, and CityMD will be the most meaningful drivers of growth in fiscal 2024. It has taken us longer than anticipated to realize the cost synergies across the combined assets."
For the fiscal year 2024, Walgreens said it expects adjusted earnings per share to be between $3.20 to $3.50, coming in below analyst forecasts of around $3.70.
Graham highlighted three near-term operational priorities for the company going forward: supporting customer-facing activities, "scrutinizing every penny of spend that does not directly benefit the customer," and improve cash management.
Wentworth will be at the helm of the company, effective October 23, as it takes these steps to drive towards profitability.
Speaking on the call, Wentworth said: "Walgreens was built on convenience, access, and trust and has unique advantages in today's healthcare environment. I see the opportunities before us to build on our pharmacy strength and our trusted brand to evolve healthcare and the customer experience to deliver better outcomes at a lower cost."
Jay Asser is the contributing editor for strategy at HealthLeaders.
KEY TAKEAWAYS
On the heels of announcing Tim Wentworth as the new CEO, Walgreens said it is aiming to reduce at least $1 billion in costs, including shuttering 60 VillageMD clinics in 2024.
Despite showing revenue growth for the fourth quarter, VillageMD underperformed and was part of the reason the U.S. Healthcare division reported an adjusted operating loss of $83 million.