Walgreens Hunts More Cost Cuts as It Expects Growth to Flatten

(Bloomberg) -- Walgreens Boots Alliance Inc., which operates thousands of U.S. drugstores, said it will try and cut another $300 million from its annual costs as it expects growth to flatten in the 2020 fiscal year.

• The pharmacy chain raised its 2022 annual savings target to $1.8 billion, up for $1.5 billion. Adjusted earnings per share will be “roughly flat” in fiscal 2020, Walgreens said. Read more on the fiscal fourth-quarter results here.

Key Insights

• U.S. drugstore sales, the biggest part of Walgreens’s business, were up 2.1% to $26 billion from a year prior. The gains were driven by more prescriptions being filled at back-of-the-store pharmacies, a trend across the industry that’s helped offset front-of-the-store retail pain.
• Non-pharmacy retail sales of items like shampoo, makeup and cigarettes were hurt by a plan to stop selling tobacco to customers under age 21, implemented Sept. 1, and led to a 1.2% drop in same-store retail sales. Rival chain CVS Health Corp. stopped selling tobacco products entirely in 2014, saying at the time that offering a cancer-causing product didn’t fit with its focus on health.
• The Deerfield, Illinois-based company has repeatedly expanded the cost-cutting plan, which originally targeted at least $1 billion in annual savings by 2022 and was expanded this spring to more than $1.5 billion. Savings will come from streamlining operations and digitizing some functions. It has also closed stores, disclosing plans in August to close 200 U.S. locations on top of a previously announced cut of as many as 750 stores.

Market Reaction

• The shares were up 1.5% in trading before the market opened in New York. They’re down 19% this year to date, one of the 50-worst performers on the S&P 500.
• Net earnings attributable to Walgreens were $677 million in the fiscal fourth quarter, down from $1.51 billion a year prior.
• Fourth-quarter adjusted earnings were $1.43 a share, compared to the $1.41 average of analysts’ estimates.
• Read the company’s full earnings press release here.

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