Walgreens Boots Alliance‘s new CEO Roz Brewer said Thursday the drugstore chain will sharpen its focus on healthcare and make it the company’s “new growth engine”.
Speaking at a virtual investor’s day, she said the company’s nearly 9,000 stores in the United States will become places where customers can go to a doctor’s appointment, take medical tests, and seek advice from a nurse or pharmacist. These services will be under a new division of the company called Walgreens Health.
“This new Walgreens Health will make a difference and move us away from retail and just dispense drugs,” she said in an interview with CNBC’s Bertha Coombs. “It will be about the life we lead and the life we touch and the life we can convey to doctors and clinicians in our buildings, both physically and digitally.”
Investors seemed receptive to Walgreens’ plan. Shares closed 7.4% on Thursday at $ 50.77. This year, stocks are up more than 29% so far.
Brian Tanquilut, a stock research analyst at Jefferies, said Walgreens achieved what many investors wanted Thursday by setting out how it will become a proactive player in healthcare.
“Right now people are saying, ‘This is a solid strategy and we’re giving you some credit for it,'” he said.
Walgreens plan is to open hundreds of primary care clinics, shake up the choice of in-store goods, and get stakes in multiple healthcare companies.
The company expects this strategy to pay off in the years to come. For the next year, adjusted earnings per share on a constant currency basis is expected to show flat growth, it said. However, growth will accelerate, so adjusted earnings per share will grow about 4% annually for the next three years. Beyond fiscal 2024, the company’s growth algorithm will result in adjusted earnings per share growth of between 11% and 13%.
Brewer referred to the companies Fourth Quarter Results as proof that Walgreens is built on solid foundations.
Tanquilut said the new vision for Walgreens is a notable linchpin.
“They’re turning the pharmacy into a health center,” he said. “Instead of relying on retail, the value driver is no longer controlling scripts [prescriptions] from the pharmacy. It actually provides care and makes the patient loyal to business. “
Expansion of the health system
It recently decided Invest another $ 5.2 billion in VillageMD, a primary care company that will operate clinics in Walgreens stores and is on track to go public in 2022. It also acquired a controlling interest in home health company CareCentrix and specialty pharmacy company Shields Health Solutions.
In addition to expanding health services, Walgreens will increase its cost savings target to $ 3.3 billion by 2024. The company decided to increase that target after saving $ 2 billion in costs, CFO James Kehoe said.
brewer took over the top management role from Walgreens in mid-March after serving as Chief Operating Officer of Starbucks and CEO of Walmart– owned by Sam’s Club.
She said the health care mission was personal to her. At the company’s Investor Day, she recalled the last months of her mother’s life as her family juggled medical bills, numerous doctors, and kidney dialysis appointments. The experience, she said, was “incredibly confusing and unwieldy and stressful”.
She said that distracted her family from what should have been the focus: enjoying the remaining time with her mother.
For so many Americans, this is the same experience – and one that Walgreens wants to solve by integrating primary care with pharmacies and freeing up more staff time to help patients.
A new look and feel in the stores
For the next several years, Walgreens leaders say consumers will see and feel the difference when they walk into neighborhood stores.
Walgreens said it will have 85 primary care clinics in stores by the end of the year. They will operate under the name Village Medical at Walgreens. By 2025, there should be at least 600 doctor’s offices in more than 30 U.S. markets, and 1,000 by 2027. More than half of them are in medically underserved parts of the country.
Walgreens Health Corners are being added in some stores and online. The retail space is occupied by medical professionals such as nurses and pharmacists who can advise patients and help them with the treatment of chronic diseases.
So far, Walgreens has opened 40 of them. By the end of this financial year there should be more than 100 and finally more than 3,000 in its branches.
Customers will be able to get other types of medical tests, such as pneumonia, strep, HIV, and sexually transmitted infections, said Walgreens President John Standley. He said the company already has pilots in place, including a test pilot for HIV in two states that expects sales of $ 26 million by fiscal 2024.
To give pharmacists time to answer customer questions, get vaccinations and other medical tests, Walgreens is opening centralized centers that fill out prescriptions and ship them to stores and homes, Standley said. It has already opened two centers in Dallas and Phoenix and plans to open an additional nine by the end of fiscal 2022, bringing the number of pharmacies served to around 3,900.
Before the store, the company’s merchandise will be “more healthy for you,” Brewer said in a CNBC interview. She said Walgreens had already seen consumers self-drawn to diet supplements and beauty products with a wellness outlook. She said more private label products will also be added.
She said Walgreens will take a close look at tobacco sales. It continued to sell cigarettes even after rival CVS Health discontinued the products in 2014.
Walgreens’ strategy is similar to that of Rivals CVS health – but with one big caveat. CVS is also an insurance provider. It Acquired Aetna in 2018 in a $ 69 billion merger. It also owns one of the largest pharmacy service managers, Caremark.
CVS has expanded its health offering in drugstores by opening emergency centers called MinuteClinics. It is turning hundreds of its stores into HealthHubs, where people can meet with a therapist, take a yoga class, or get help managing their diabetes.
According to Jefferies’ Tanquilut, CVS is pursuing a more holistic health strategy with Caremark, Aetna and their businesses. This creates natural synergies, he said, such as encouraging Aetna members to go to MinuteClinic for flu shots or urgent treatment. In addition, CVS has a “first mover advantage” by converting businesses into health goals.
He has a hold rating on Walgreens stock with a target price of $ 53, about 5% above current stock price. He has a buy rating on CVS stock with a target price of $ 95, about 12% higher than where the stock is currently trading.
On Thursday, Kehoe said that Walgreens lack of an insurance company can work to its advantage. He said the company is non-cash and focused solely on improving health outcomes. He also said Walgreens will have full-fledged primary care clinics, not the more limited services that MinuteClinic offers.
So far, Walgreens has signed agreements with Clover health, an insurance start-up from Medicare, and Blue Shield of California to provide health care services to more than 2 million members.
AJ Rice, a health services equity research analyst at Credit Suisse, said Walgreens hopes insurers will see them as “Switzerland” as their “partner of choice”.
He said CVS and Walgreens both have a great opportunity to turn retail pharmacies into collaborative healthcare touchpoints. However, he said companies need to prove they can attract people with clinical backgrounds and make the cultural shift.
It has a neutral rating on Walgreens stock with a price target of $ 48, including where the stock is currently trading, and an outperformance rating on CVS, with a price target of $ 100 above where the stock is currently trading traded.
Walgreens will look for growth in other areas as well. In the UK, boots stores are known for their wide range of premium makeup and beauty brands. Kehoe said retail traffic picked up again when the country lifted pandemic restrictions, making people more comfortable browsing the aisles and socializing.
Some of Walgreen’s beauty brands, No. 7, and Soap & Glory, are now sold by major US retailers, including target, Ulta beauty and Walmart. These brands are currently in a $ 750 million business and are expected to grow to $ 1 billion, Kehoe said.
Credit Suisse’s Rice said Walgreens executives have also hinted at reassessing some of the companies the company owns. He said investors would be watching to see if Walgreens will sell assets – like some of its international businesses – to fund some of its growth in healthcare in the US
More vaccine demand is still ahead
Covid-19 vaccines are expected to further boost business in the coming year. Walgreens administered 34.6 million vaccines for the fiscal year ended August 31. 13.5 million vaccines were administered in the fourth quarter, accounting for 21% of the total vaccines administered.
Walgreens estimates there will be 25 million Covid vaccines in the coming fiscal year as some people receive booster vaccinations and younger children are expected to qualify for the vaccinations.
But the company will also face a list of challenges retailers are currently facing. These include an increase in shoplifting, labor shortages and pandemic-induced supply chain confusion.
Walgreens is one example Closure of five additional locations in San Francisco for organized retail theft. It recently announced plans to raise the minimum wage to $ 15 an hour until November 22nd to keep up with other retailers who have raised wages or given perks.
Kehoe said the company was preoccupying the company’s health care business at a time when there was “a war for talent.” However, he said Walgreens has an easier time hiring healthcare professionals who know more about the company and “believe in the vision”.