Walgreens Boots Alliance Market Challenges and Growth Strategy - Business

Walgreens Boots Alliance Facing Challenges

New York CNN reported that Walgreens Boots Alliance has decided to close a significant number of its stores in the United States due to profitability issues. CEO Tim Wentworth mentioned that around 25% of Walgreens' stores are not profitable, leading to the decision to close stores that are in close proximity to each other or facing challenges such as theft.

Walgreens admitted last year it cried too much over the business impact of shoplifting.

The chain has been facing deeper problems, including competition and failed growth strategies. In 2019, Walgreens announced the closure of 200 stores, followed by an additional 150 closures last year as part of a larger downturn in the drug store industry. CVS, the largest US chain, also closed stores, and Rite Aid filed for bankruptcy and is set to close up to 500 stores.

Challenges in the Industry

Analysts have pointed out that drug store chains are struggling due to falling reimbursement rates for prescription drugs. The majority of drugstore sales come from filling prescriptions, but profits have been decreasing due to lower reimbursement rates and higher fees. Pharmacy benefit managers (PBMs) play a significant role in determining drug prices and reimbursement rates, impacting the profitability of drug stores.

If reimbursement rates start to come down and drug stores cant offset it with other growth, then it has a negative impact on their profitability,

said Elizabeth Anderson, an industry analyst. Additionally, changing consumer trends have affected the profitability of drug stores' front-end sales, with more customers opting to purchase items online or from big-box retailers.

Financial Challenges and Stock Performance

Walgreens Boots Alliance recently reported a decline in its stock price, with shares falling more than 53% since the beginning of the year. The company's fiscal third-quarter earnings report revealed reduced guidance, store closures, and a new plan to address its financial challenges. Despite a rise in revenue, adjusted earnings per share fell, leading to a decline in operating income.

The company has a significant amount of debt and negative operating cash flow, which has raised concerns about its financial stability. Walgreens plans to close a significant portion of its US locations over the next three years while focusing on improving customer experience and digital offerings. The stock is currently trading at historically low levels, presenting an opportunity for patient investors who believe in the company's turnaround potential.