Walgreens announces $1B cost-cutting program due to poor Q4

Walgreens is reacting to a string of poor financial results with a massive program aimed at reducing costs and strengthening the company.

The company recorded a fourth quarter sales increase of 9.2% year-over-year, but net earnings were down about 17% year-over-year at $575 million and earnings for the year dropped 20% to $3.4 billion.

Now Walgreens Boots Alliance, which announced the hiring of new CEO Tim Wentworth earlier this week, says it is going to turn the tables behind a $1 billion cost-cutting effort that also includes lowering capital expenditures by around $600 million. The program, which will also seeWalgreens cut non essential spending and contracted and project work while optimizing the company’s transportation network, should start producing results by the second quarter of fiscal year 2024.

“We must support our customer-facing activities, scrutinize every penny of spend that does not directly benefit the customer and improve cash management,” interim CEO Ginger Graham said on Thursday’s earnings call.

Wentworth was also on the call and said he wants to see the company build on its pharmacy strength to evolve health care.

Walgreens blames the poor fourth quarter showing on the reduction on COVID-19 tests and vaccines, lawsuits and opioid settlements, inflation, and insurance disruptions caused by Medicaid.

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Walgreens’ U.S. Retail Pharmacy sector posted a 3.7% sales increase in the fourth quarter compared to Q4 2022 and comparable sales were up 5.7%.

However, retail sales dropped 4.3% year-over-year and comparable retail sales were down 3.3%.

The retailer’s U.S. health care segment had fourth quarter sales of $2 billion but an operating loss of $294 billion.

For fiscal year 2023, sales were up 4.8% at $139.1 billion but Walgreens’ operating loss was $6.9 billion compared to an operating income of $1.4 billion in fiscal year 2022. Net loss this fiscal year was $3.1 billion after the company experienced net earnings of $4.3 billion a year ago.

“Our performance this year has not reflected [Walgreens Boots Alliance’s]’s strong assets, brand legacy, or our commitment to our customers and patients,” said Graham. “In just six weeks, we have taken a number of steps to align our cost structure with our business performance.”