(Bloomberg) — Walgreens Boots Alliance Inc. will close 200 of its 8,232 U.S. drugstores to reduce costs as its profits get squeezed by competition and by lower reimbursements from pharmaceutical insurers.
The company will also reorganize corporate and field operations and revamp its technology, which along with the store closings will help cut an additional $500 million in costs by the end of fiscal 2017. That would extend a $1 billion cost-cutting initiative announced in August.
Investors cheered the plans and the company’s quarterly earnings report, which beat analysts’ estimates. Walgreens Boots shares climbed 3 percent to $90.30 in early trading. Through Wednesday, they had increased 15 percent this year.
Interim Chief Executive Officer Stefano Pessina is seeking to keep expenses in check as he works on a long-term plan to revamp the U.S. drugstores, forging them in the mold of the more stylish Boots stores in Europe. While Walgreens forecast profit for its current fiscal year that may trail analysts’ estimates, it maintained its projection for fiscal 2016 earnings, indicating the results it expects its cost-cutting measures to yield.
Pessina, who’s also the company’s largest shareholder, has replaced executives and telegraphed his interest in U.S. deals. Rite Aid Corp. (NYSE:RAD) is seen as a possible target, Peter Drippe of Visium Asset Management LP, said earlier this month.
Excluding certain items, fiscal 2015 profit will be $3.45 to $3.65 a share for the 2015 fiscal year, Walgreens said Thursday in a statement. Analysts had estimated $3.60 on average, according to data compiled by Bloomberg. Adjusted earnings will rise to $4.25 to $4.60 a share in fiscal 2016, said the company, based in Deerfield, Ill.
The cost-cutting plans will lead to charges of $1.6 billion to $1.8 billion before taxes, to be recorded over time.