Strategy

After Merger, Walgreens Plans $1.5B in Cost Cuts

The focus is on operations for the newly global company, which will close 200 U.S. stores.
Katie Kuehner-HebertApril 9, 2015

Now that Walgreens has completed its trans-Atlantic merger with Alliance Boots, the European-led management team is set to close 200 U.S. stores and cut other costs within the U.S. operations, as part of a $1.5 billion cost-cutting initiative.

New Walgreens boss Stefano Pessina

New Walgreens boss Stefano Pessina

In its second-quarter fiscal 2015 press release Thursday, the now-named Walgreens Boots Alliance said that, in addition to the previously announced three-year, $1 billion cost-reduction initiative, the company has identified additional opportunities for cost savings. Those will be primarily in the company’s U.S. retail pharmacy division, which would increase the total expected cost savings program by $500 million.The additional measures include closing 200 U.S. stores, reorganizing corporate and field operations, implementing operating efficiencies, and streamlining information technology and other functions.

The measures are part of a larger initiative to “proactively address headwinds such as reimbursement pressure and competition,” executive vice chairman and acting chief executive Stefano Pessina said in the release.

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“The first area is improving the performance of our businesses worldwide with an emphasis on operations,” Pessina said. “Second, we will be refreshing and reinvesting in the stores of our retail pharmacy USA division to improve the customer experience and expand retail margins. Third, we are restructuring our cost base, with a focus primarily in the USA, to create a more efficient cost model and become a more agile company. Through these efforts, Walgreens Boots Alliance is determined to lead the way in our industry and be at the forefront of innovative, pharmacy-led health care.”

The company also said that adjusted fiscal 2015 second-quarter net income attributable to Walgreens Boots Alliance rose 33.2%, to $1.2 billion, compared with the same quarter a year ago.

A Wall Street Journal article Thursday said that Pessina, “an Italian-born billionaire,” built up Alliance Boots through numerous acquisitions throughout Europe and now may seek other deals in the U.S. due to the rapidly changing health care industry.”

Pessina said in the earnings conference call, “The complex structure of delivering the medicine to patients will have to be rationalized. As a consequence, it’s easy to believe that we’ll have additional synergies coming from M&A activities.”