Walgreens Boots Alliance Inc. (NASDAQ:WBA) has significantly reduced its financial outlook and announced additional store closures due to a deteriorating retail environment. The company’s new CEO aims to revitalize the struggling business.

Alongside closing more locations, Walgreens plans to implement further organizational changes, though specifics on potential job cuts were not disclosed. The company has faced a turbulent period marked by executive turnover and a challenging retail market.

Walgreens shares plummeted by as much as 25% on Thursday, marking the steepest one-day decline since at least 1980, according to Bloomberg data.

“The optimism surrounding Tim Wentworth’s appointment as CEO has waned,” said Jonathan Palmer, an analyst at Bloomberg Intelligence. “It’s becoming clear that turning the business around won’t be easy, as core US pharmacy profitability continues to decline.”

Investors were hoping for a more decisive strategy from management, such as selling the Boots chain or securing a deal for primary care provider VillageMD, Palmer added.

Earnings Downgrade

Walgreens revised its full-year adjusted earnings forecast to a range of $2.80 to $2.95 per share, after previously lowering the top end of its guidance. Adjusted earnings for the quarter ending May 31 were 63 cents per share, falling short of Wall Street’s expectation of 68 cents.

The company stated in its presentation that it anticipates current challenges to continue into the next fiscal year.

“It’s difficult to gauge the financial impact of these changes over the coming years as we await more details,” said John Boylan, an analyst at Edward Jones. “Walgreens is on the right path, but its strategy will take time to yield results, and the company faces an uncertain and evolving consumer landscape.”

Operating income for the quarter was $111 million, compared to a $477 million operating loss a year ago, which included a $431 million writedown on its Boots business.

Quarterly sales for the Boots business reached $5.7 billion, a 2.8% increase from the same period last year. Although Walgreens had revived discussions about a potential exit from Boots, it has postponed plans for an initial public offering and is exploring other options, according to Bloomberg sources.

On a call with investors, Wentworth affirmed the company’s commitment to investing in Boots while exploring innovative ways to realize its potential.

Walgreens Shifts to Primary Care

Similar to its competitor CVS Health Corp, Walgreens is transitioning away from its retail origins and expanding into more lucrative areas like primary care. However, these efforts have pressured profits, challenging executives to execute a successful turnaround.

During the brief tenure of former CEO Roz Brewer, Walgreens shares lost half their value. Under current CEO Tim Wentworth, who took over in 2023, the company has initiated a business review to boost cash flow and expand in health care. Last year, Walgreens announced a $1 billion cost-cutting plan, partly by closing unprofitable locations. On Thursday, management confirmed they are on track to achieve this goal.

The US health-care unit, which includes VillageMD, has outperformed the traditional retail pharmacy division.

The health-care segment reported $2.1 billion in revenue, a 7.6% increase from the previous year. Walgreens has invested $5.2 billion in VillageMD, enabling the opening of hundreds of doctor’s offices within its stores. However, the division has underperformed, leading to plans to close 160 clinics and a $5.8 billion writedown last quarter.

Walgreens’ US retail pharmacy unit reported $28.5 billion in revenue, a 2.3% increase from the same period last year.

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