Walgreens: new CEO may decide Boots was made for hawking

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Walgreens Boots Alliance is an ailing company in desperate need of a new prescription for growth. The US drugstore operator is struggling with tepid consumer spending and a drop in sales of Covid-19 tests and vaccines. In June, it slashed its full-year earnings guidance. The shares, worth more than $95 at their 2015 peak, are currently trading at less than a quarter of that.

The company could also do with a dose of stability in its C-suite. Its finance boss left in July. That was followed by the abrupt departure of chief executive Rosalind Brewer in September.

The appointment of healthcare industry veteran Tim Wentworth as her successor is welcome news. Yet a new leader may not be enough to cure all of Walgreens’ ailments.

For starters, running physical drugstores is not the cash cow it once was. Walgreens operates nearly 9,000 stores in the US. Cheaper generic drugs are squeezing pharmacy sales margins. Online competitors, namely Amazon, are chipping away at so-called “front end” sales of everyday items such as toothbrushes and make-up.

US retail pharmacy sales accounted for more than four-fifths of Walgreens’ revenues last year. In the last quarter these sales rose 4.4 per cent, helped by easier comparatives. 

Brewer sought to expand into healthcare services, which are more lucrative. Walgreens acquired urgent-care provider Summit Health-City MD and post-acute home-care provider CareCentrix.

But the transition has been slow. That is one reason why Walgreens shares, priced at just 6 times forward earnings, continue to trade at a discount to rival CVS. The latter is more diversified. It has built up a large pharmacy benefit management business and a leading health insurance division via acquisitions.

Wentworth used to run pharmacy benefit manager (PBM) Express Scripts. He is expected to continue the company’s push into healthcare. To fund it, he could well revive plans to sell Boots, the UK drugstore business. A sale, which was abandoned last year, would fetch billions of dollars.