• by Sarah Mahoney  @mahoney_sarah, October 15, 2024

While Walgreens' sales reached a respectable 6% gain in the final quarter of its fiscal year, reaching $37.5 billion, its loss rolled in at $978 billion, bringing the fiscal year's red ink to a breathtaking $8.6 billion. Those results are somewhat better than what observers expected. Some see it as a step in the right direction, and others as part of an ongoing train wreck.

While rivals like Rite Aid and CVS are fighting their own financial battles, Walgreens’ path to recovery is uncertain.

The company says it needs to close 1,200 of its 8,000 stores—500 of them in the coming fiscal year—to regain profitability.

Walgreens says the quarterly results show its business model is still a work in progress. “In fiscal 2025, we are focusing on stabilizing the retail pharmacy by optimizing our footprint, controlling operating costs, improving cash flow, and continuing to address reimbursement models to support dispensing margins and preserve patient access for the future,” says Tim Wentworth, chief executive officer, Walgreens Boots Alliance, in the report. “Fiscal 2025 will be an important rebasing year as we advance our strategy to drive value creation. This turnaround will take time, but we are confident it will yield significant financial and consumer benefits over the long term.”

Some observers are decidedly less confident. “This has been yet another terrible quarter for Walgreens, and one which caps a fiscal year of problems and turmoil,” writes Neil Saunders, managing director of GlobalData, in his note on the results. “The closure of so many stores is emblematic of a company in trouble. Walgreens spent years building its business through acquisitions and completely neglected the fundamentals of its stores and its retail operations.”

And closing stores “will help the company strengthen its financials over time, but it is effectively a huge admission of failure,” he adds. “The closures will also raise concerns about the emergence of more pharmacy deserts.”

Investors, however, responded positively to the news, viewing the closures as further evidence that Walgreens' transformation plan is on track. And Keonhee Kim, an analyst who follows Walgreens for Morningstar, notes that while the 1,200 stores targeted for shuttering are moderately higher than he expected, “it is about half of 2,000 locations that were deemed as under review.” 

Kim notes that Walgreens’ strong revenue is primarily due to gains in the U.S. retail pharmacy sector, “offset from weak front-end retail business. The consumer environment remains challenged, and we expect difficult comparisons to persist and be exacerbated by store closures, affecting both the top and bottom lines,” Kim says. “We still expect it will take several years before margins catch up to the pre-2024 level.”