Walgreens Boots Alliance eyes another $1B in cost cuts for fiscal 2024

In the debut earnings call for its incoming CEO, Walgreens Boots Alliance (WBA) outlined an expected $1 billion in cost savings for its 2024 fiscal year.

Former Cigna and Express Scripts executive Tim Wentworth, announced Tuesday as WBA’s new chief executive effective Oct. 23, led off the company’s fiscal 2023 fourth-quarter conference call on Thursday with some comments about himself and Walgreens.

“I’ve consistently built relationships and offered solutions, both for customers who are looking for a trusted innovative partner who listens and for patients who are looking for access and affordability. This impact was the direct result of having a winning team of employees and a culture that values patients,” Wentworth told analysts on the call. (Call transcript provided by AlphaSense.)

To WBA, Wentworth brings almost three decades of leadership in the health care sector, in which his new company is building a bigger presence as it transforms from a drug store retailer into a broader health services provider.

“Now, I know WBA. I have worked with Walgreens as a customer, partner, competitor, investor and family member, and I understand the challenges ahead for us, as well as for the health care industry,” Wentworth explained. “Walgreens was built on convenience, access and trust and has unique advantages in today’s health care environment. I see the opportunities before us to build on our pharmacy strength and our trusted brand to evolve health care and the customer experience to deliver better outcomes at a lower cost.”

Related:Walgreens Boots Alliance taps former Cigna exec Tim Wentworth as CEO

Cost-efficiency top of mind

WBA had said Wentworth will focus on “right-sizing the business” and improving execution and profitability. In the Q4 call, interim CEO Ginger Graham got right to the point.

“I see significant opportunity to improve the cost base of this business. During the last six weeks, we have taken decisive actions to right-size our cost structure. We expect over $1 billion of cost savings during fiscal year 2024, based on the actions we have already taken and are in progress,” she said.

Those savings will come from across the business, Graham noted. “Examples include reducing our headquarters cost going line-by-line, expense category-by-expense category and reducing all nonessential spend. We’ve reviewed and are reducing areas for contracted or project work. We are altering our store operating hours based on local market trends. We are closing unprofitable stores. We’re driving supply chain efficiencies, including using AI to more accurately forecast demand and optimizing our transportation network,” she told analysts. “We’re also implementing centralized services that control inventory, reduce workload and provide better customer support. We’re taking a hard look at all projects and stopping those that are not essential. These actions reduce expenses but, more importantly, they help focus our energy on the most important needs for the business and for our customers.”

Related:Is there a prescription for the big-three drug chains?

WBA, too, is targeting a more than $500 million improvement in working capital management and plans $600 million less in capital expenditures for fiscal 2024, according to Graham. Planned capital spending includes projects that contribute to increased efficiency and savings, such as a “perpetual pharmacy inventory system” now deployed at all 9,000-plus U.S. drug stores, the launch of an 11th regional micro-fulfillment center for filling prescriptions (with five more facilities slated) and a shift to store-based fulfillment for e-commerce orders.

In reporting fiscal 2023 third-quarter results, WBA cited difficulties in improving profitability at its U.S. Healthcare business. That led the company to raise the target for its Transformational Cost Management Program, launched in late 2018, from $3.5 billion to $4.1 billion in overall savings through fiscal 2024. An organizational restructuring led to the reduction of over 500 jobs, or about 10% of WBA’s corporate and U.S. support office workforce. The company also expects to close an additional 300 stores in the United Kingdom over the next 12 months and another 150 locations in the United States by the end of fiscal 2024 next August.

Related:CIO Hsiao Wang marks latest Walgreens Boots Alliance C-suite exit

Fiscal year ends with net losses despite sales growth

For the fiscal 2023 fourth quarter ended Aug. 31, Deerfield, Illinois-based WBA saw sales rise 9.2% year over year  ( 8.3% in constant currency) to $35.42 billion. The gain reflected sales growth in the U.S. Retail Pharmacy and International business units plus the sales contribution from the U.S. Healthcare segment.

WBA’s U.S. Retail Pharmacy business tallied Q4 sales of $27.7 billion, up 3.7%. Comparable sales grew 5.7% and included a 3.3% decrease in the front end and a 9.2% gain in the pharmacy, with prescription count up 1.6%.

Full-year 2023 sales climbed 4.8% ( 5.6 in constant currency) to $139.08 billion. In the U.S. Retail Pharmacy unit, sales edged up 1.1% to $110.31 billion for the year.

At the bottom line, WBA posted a fiscal 2023 Q4 net loss of $180 million, or 21 cents per diluted share, down from a net loss of $415 million, or 48 cents per diluted share, a year earlier. On an adjusted basis, the company recorded net income of $575 million, or 67 cents per diluted share, versus $694 million, or 80 cents per diluted share, in the prior-year period. Analysts, on average, had forecast adjusted earnings per share of 69 cents, with estimates ranging from 66 cents to 70 cents, according to Refinitiv.

WBA closed out fiscal 2023 with a net loss of $3.08 billion, or $3.57 per diluted share, compared with net income of $4.34 billion, or $5.01 per diluted share, in fiscal 2022. The earnings drop reflects a $5.5 billion after-tax charge for opioid-related claims and litigation in the period and the cycling of a $2.5 billion after-tax gain on the VillageMD and Shields Health Solutions investments in fiscal 2022, partly offset by a $1.7 billion after-tax gain from the sale of Option Care Health and the sale of an investment in Cencora, WBA reported. Analysts’ consensus fiscal 2023 estimate was for adjusted EPS of $3.99, with projections running from $3.93 to $4.02.