Walgreens CEO Steps Down In Surprise Management Shake-Up
Key takeaways
- Walgreens’ CEO, Rosalind Brewer, has left the company after only joining in 2021
- The drugstore chain’s push into healthcare has so far proved unprofitable
- Walgreens’ share price fell 7% at the news after an already gloomy 2023 performance
Walgreens Boots Alliance’s CEO has abruptly departed the company after less than three years in the position. The decision was allegedly mutual after Walgreens saw its share price halve as the drugstore chain now looks to reposition itself as a healthcare provider – and a snazzy new CEO with the industry experience to match.
After a mixed bag of quarterly financial results, Walgreens is still looking to pivot – but can the company pull it off and recover the share price, or should it stick to what it knows with the core drugstore business and boost profitability there? Here’s the latest on the management reshuffle and Walgreens’ future plans.
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What’s happened with Walgreens?
Walgreens has confirmed its CEO, Rosalind Brewer, has stepped down as part of a mutually agreed decision. Brewer first joined the company in March 2021 from Starbucks, where she was COO and group president; since then, the drugstore chain’s share price has plummeted 47%. Brewer will stay on as a special adviser through February 2024.
Brewer drove Walgreens’ push into healthcare by adding primary care hubs to stores, acquiring Summit Health-City MD last year, and leading the investment into VillageMD in late 2021. However, Walgreens has suffered heavy losses in its push into the primary care sector while falling in sales for everyday items like toothpaste and soap as competitors offer faster delivery or better prices.
“I am confident that WBA is on track to be a leading consumer-centric healthcare company, serving thousands of communities across the country, especially those that need access to healthcare the most,” Brewer said in a prepared statement.
Brewer’s departure comes a month after Walgreens’ CFO, James Kehoe, left the company, leaving Walgreens without two major executives at the helm. Lead independent director Ginger Graham, who has deep healthcare experience, has been appointed interim CEO.
Is Walgreens struggling?
If the drugstore’s latest quarterly earnings report is anything to go by, then the company isn’t looking too hot financially. Walgreens’ fiscal third-quarter earnings recorded $1 per share based on revenue of $35.42 billion, compared to the $1.07 per share on $34.24 billion in revenue that analysts forecasted.
Even though revenue and sales across several segments increased, the earnings per share was the first time Walgreens had missed estimates since 2020. Net profit also plunged 59% to $118 million for the quarter, down from $289 million for the same quarter last year.
Walgreens also saw a steep drop in Covid vaccinations, which mirrors other healthcare providers’ experience. Vaccinations were down 83% to 800,000 compared to the 4.7 million doses administered last year.
Walgreens also confirmed it was upping the stakes for its cost-cutting initiatives to save $4.1 billion, including a $800 million saving for fiscal year 2024. The company has lowered its earnings guidance to $4 to $4.05 per share for the whole year, down from $4.45 to $4.65 per share. It was enough to send Walgreens’ share price down 9% at the time.
How did Wall Street take the news?
Everyone knows investors don’t like a surprise announcement, especially one that affects a company’s leadership. Wall Street reacted in turn, with Walgreens’ share price plunging 7.4% by the bell on Friday trading.
Walgreens’ share price has dropped 37% since the start of 2023, but its competitors haven’t fared much better as Covid vaccinations dropped off and consumers pulled back on spending. In comparison, rival CVS has fallen 29% in the same period, and Rite Aid
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Walgreens’ quest to become a healthcare leader
A comment from Walgreens’ executive chairman gave some insight into the company’s future plans, as Stefano Pessina said the company would “advance the search for a successor with deep healthcare experience to lead in today’s dynamic environment”.
The company is already on the path to becoming a healthcare leader, making a name for itself after investing in VillageMD for $5.2 billion in October 2021. The deal intended to bring 600 Village Medical branches to Walgreens primary care practices by 2025, expanding to 1,000 by 2027.
The figures look promising. In Walgreens’ fiscal third quarter, the healthcare segment made $2 billion in sales, a $1.4 billion increase from the same period last year. Its subsidiary VillageMD, a primary healthcare provider, saw a 22% revenue boost. CareCentricx, Walgreens’ at-home healthcare provider, climbed 15%.
However, the VillageMD investment has proved costly for the business. Walgreens’ healthcare segment recorded a $113 million loss before EBITDA, primarily due to the VillageMD investment. While most of the expansion was driven by Brewer, other competitors like CVS, which bought health insurer Aetna in 2017, have proven more profitable.
Walgreens has also decided to reduce its retail presence, with competitors like Amazon and Walmart gradually gaining market share. The business plans to close 450 stores and lay off 10% of its workforce, while plans to divest the U.K. chain of Boots stores have so far proven unsuccessful.
The bottom line
With a background as a successful retail executive, it’s likely that Walgreens simply didn’t think Brewer had enough clout in the healthcare industry to see through its transformation. Instead, the company is doubling down on the work Brewer started and repositioning itself as a healthcare company instead of a retailer.
The third-quarter figures for Walgreens’ healthcare segment were promising, but without a permanent CEO and CFO, investors will be nervous – so Walgreens will be looking to make an announcement quickly. Whoever it is, expect them to have a deep bench of healthcare expertise to steady the ship and the stock price.
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