Battered by cost-conscious consumers seeking better value at retailers like Walmart (WMT, Financial) and Costco (COST, Financial), Walgreens Boots Alliance's (WBA, Financial) retail business has struggled, leading to a 67% stock plunge since early 2023. WBA's turnaround plan focuses on expanding its pharmacy and U.S. healthcare businesses while downplaying its retail segment, including Boots UK. Over the past few years, WBA has unsuccessfully tried to sell Boots, prompting its Managing Director, Sebastian James, to leave the company.
- Mr. James is leaving Boots as WBA's attempts to sell the UK retailer have stalled. With no immediate cash infusion from a sale and WBA moving away from retail, James will reportedly join Veonet, a Germany-based eye surgery company.
- This departure is discouraging for shareholders, who are growing impatient with WBA's slow turnaround. Divesting Boots would be a significant step in WBA's transformation, generating capital for reinvestment into the healthcare business. Since 2021, WBA has sought to sell Boots but has yet to receive a satisfactory bid.
- Under WBA's ownership, Boots has had inconsistent performance. However, Q3 saw retail same-store sales grow by 6% and pharmacy same-store sales by 5.8%, outperforming the U.S. Retail Pharmacy segment, which saw 2.3% growth driven solely by comparable pharmacy sales.
- WBA is also considering closing a substantial portion of its 8,700 U.S. locations over the next three years, potentially evaluating the closure of about 25% of its stores, as disclosed by CEO Tim Wentworth during the Q3 earnings call.
- WBA aims to improve its U.S. pharmacy business, which posted a 5.7% increase in Q3 comps due to healthy prescription growth. However, it faces decreasing reimbursements from pharmacy benefit managers (PBMs) like CVS Caremark (CVS, Financial) and Cigna's Express Scripts (CI, Financial). CEO Tim Wentworth, with his experience in the PBM industry, previously served as CEO of Express Scripts.
After several years of disappointing results, investors are eager for meaningful progress in WBA's transformation efforts. The news that a divestiture of Boots isn't imminent may add to their frustrations.
