Walgreens to close at least 600 stores
Walgreens will spend about $450 million and close about 600 stores beginning next spring as it starts integrating Rite Aid stores into its own footprint of about 8,100 locations.
In a fourth quarter earnings call, CFO George Fairweather said the closures will cost $450 million, but the resulting savings will yield $300 million annually by the end of fiscal 2020.
Walgreens blamed termination fees and costs related to the Rite Aid deal for a 22 percent drop in fourth quarter earnings, which fell to $802 million from $1.03 billion. Same store sales in the retail pharmacy business increased 3 percent. Net sales were $30.1 billion, an increase of 5.3 percent from the year-ago quarter, and an increase of 6.4 percent on a constant currency basis.
"We are pleased to report the company has performed well, with our businesses delivering significant progress while managing against ongoing prescription reimbursement pressure and competing in fast-changing retail environments," CEO Stefano Pessina said in a statement. We look forward to building on this solid underlying growth in the year to come, enhanced by the expansion of our U.S. retail pharmacy network through the upcoming purchases of Rite Aid stores."
Walgreens said its retail pharmacy business in the U.S.had sales of $22.3 billion, an increase of 7.5% from the same quarter last year. Comparable store sales increased 3.1% though overall retail sales decreased 3.9% percent. The company attributed this decline to the "closure of certain e-commerce operations." Declines in the consumables and general merchandise category and in the personal care category were partially offset by growth in the beauty category and in the health and wellness category.
"Our beauty differentiation program has driven profit and margin improvements as our own brands continue to perform well. Beauty category sales continue to be markedly better, supported by strong sales growth of No. 7 and Soap and Glory brands. We launched two new beauty brands during the quarter. They are designed to appeal to our younger customers. And we have launched another beauty brand, a skin care range. We are adding focused on adding an enhanced beauty offering to more stores," Fairweather said.
Pharmacy sales, which accounted for 72.1 percent of the division’s sales in the quarter, increased 12.6 percent compared with the year-ago quarter, primarily due to higher prescription volumes, including mail and central specialty following the formation of AllianceRx Walgreens Prime. Comparable pharmacy sales increased 5.6 percent, primarily due to higher volume.
Sales increased 0.7 percent to $118.2 billion in fiscal 2017 compared with the prior year. On a constant currency basis, sales increased 3.3 percent.
In September, Walgreens said it secured regulatory clearance to purchase 1,932 Rite Aid stores, three distribution centers and related inventory for $4.375 billion. Walgreens is buying the Rite Aids in phases with the “first few” acquired in the past week and the remaining to be purchased by spring of 2018.
Walgreens said it expects 2018 adjusted earnings of $5.40 to $5.70 per share.