New Walgreens Boots Alliance CEO Roz Brewer said on Thursday the drugstore chain would focus more on healthcare and make it the “new engine of growth” for the company.
During a Virtual Investor Day, she said the company’s nearly 9,000 stores across the United States will become places where customers can go to doctor’s appointments, take medical tests. and seek advice from a nurse or pharmacist. These services will fall under a new division of the company called Walgreens Health.
“This new Walgreens Health will make a difference and start to move us away from retail and just distributing pharmaceuticals,” she said in an interview with Bertha Coombs of CNBC. “These will be the lives we manage, the lives we touch, and the lives we can surround with doctors and clinicians in our buildings, both physically and digitally.”
Investors appeared receptive to Walgreens’ plan. The shares closed up 7.4% at $ 50.77 on Thursday. So far this year, shares have risen more than 29%.
Brian Tanquilut, equity research analyst for Jefferies, said Walgreens responded to what many investors wanted on Thursday by explaining how it would become a proactive player in healthcare.
“Right now people are saying, ‘It’s a good strategy and we’ll give you some credit for it,'” he said.
Walgreen’s plan includes opening hundreds of primary care clinics, reshuffling its storefront product selection and acquiring stakes in several healthcare companies.
The company expects this strategy to bear fruit in the years to come. Next year, adjusted earnings per share should show stable growth at constant exchange rates, he said. But growth will accelerate so adjusted earnings per share will grow by around 4% per year over the next three years. Beyond fiscal 2024, the company’s growth algorithm will lead to growth in adjusted earnings per share of between 11% and 13%.
Brewer pointed out that the company’s fourth quarter earnings show Walgreens is on a solid footing.
Tanquilut said Walgreens’ new vision is a notable pivot.
“You are making the pharmacy a health center,” he said. “Instead of focusing on retail, the engine of value is no longer the engine of scripts [prescriptions] out of the pharmacy. It’s really about providing care and retaining the patient in the store. “
Rise in health services
It recently decided to invest an additional $ 5.2 billion in VillageMD, a primary care company that will operate clinics inside Walgreens stores and is set to go public in 2022. It has also acquired a controlling stake. in home care company CareCentrix, and specialty pharmacy company, Shields Health Solutions.
Along with the rise in healthcare, Walgreens will increase its savings target to $ 3.3 billion by 2024. It decided to increase that target after cutting costs by $ 2 billion, a said CFO James Kehoe.
Brewer took over as Walgreens executive in mid-March after serving as COO of Starbucks and CEO of Walmart-owned Sam’s Club.
She said for her, the mission of health care is personal. On the company’s investor day, she recalled the last months of her mother’s life, when her family juggled medical bills, numerous doctors, and kidney dialysis appointments. The experience, she said, was “incredibly confusing, heavy and heavy.”
She said it distracted her family from what should have been the goal of enjoying the time she still had with her mother.
For so many Americans, she said it was the same experience – and one that Walgreens aims to address by pairing primary care with pharmacies and freeing up more employee time to help patients.
A new look and feel in stores
Over the next several years, executives at Walgreens say consumers will begin to 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 be under the name Village Medical at Walgreens. It plans to have at least 600 doctor’s offices in more than 30 US markets by 2025 and 1,000 by 2027. More than half of them will be in medically underserved areas of the country.
In some stores and online it will add Walgreens Health Corners. In-store spaces will be staffed with healthcare professionals, such as nurses and pharmacists, who will be able to consult with patients and help them manage chronic illnesses.
So far, Walgreens has opened 40. It plans to have more than 100 by the end of this fiscal year and eventually have more than 3,000 in its stores.
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 had pilot projects, including a two-state HIV testing pilot, which is expected to reach $ 26 million in revenue by fiscal 2024.
To free up pharmacists’ time to answer customer questions, administer vaccines and perform other medical tests, Walgreens is opening centralized centers that fill prescriptions and ship them to stores and homes, Standley said. It already has two centers open in Dallas and Phoenix and plans to open nine more by the end of fiscal 2022, bringing the number of pharmacies served to around 3,900.
At the front of the store, the company’s merchandise will have “more of a healthy focus for you,” Brewer said in an interview with CNBC. Already, she said, Walgreens has seen consumers gravitate towards wellness-focused supplements and beauty products on their own. She said it will also add more private label products.
She said Walgreens would carefully review tobacco sales. He continued to sell cigarettes, even after rival CVS Health discontinued the products in 2014.
With this strategy, Walgreens is following a similar path to rival CVS Health – but with one major caveat. CVS is also an insurer. It acquired Aetna in 2018 in a $ 69 billion merger. It also owns one of the largest managers of pharmaceutical benefits, Caremark.
CVS has expanded the health care services it offers in pharmacies by opening emergency care centers called MinuteClinics. He’s turning hundreds of his stores into HealthHubs where people can meet a therapist, attend a yoga class, or get help managing their diabetes.
Jefferies’ Tanquilut said CVS has a more holistic health strategy with Caremark, Aetna, and its stores. This leads to natural synergies, he said, such as encouraging Aetna members to come to MinuteClinic to get their flu shot or receive emergency care. Plus, he said, CVS has a “first-come advantage” in turning stores into healthcare destinations.
It has a conservation rating for Walgreens shares with a price target of $ 53, which is about 5% above the level where the shares are currently trading. It has a buy rating for CVS shares with a price target of $ 95, which is about 12% higher than where the shares are currently trading.
Kehoe said Thursday that Walgreens’ lack of an insurance company could work to his advantage. He said the company was independent from payers and only focused on improving health outcomes. Additionally, he said Walgreens will have full-fledged primary care clinics, not the more limited services provided by MinuteClinic.
So far, Walgreens has made deals with Clover Health, a health insurance startup, and Blue Shield of California to provide health services to more than 2 million members.
AJ Rice, equity research analyst for healthcare at Credit Suisse, said Walgreens hopes that “being Switzerland” insurers see it as a “partner of choice.”
He said that CVS and Walgreens both have a great opportunity to transform retail pharmacies into community points of contact for healthcare. Still, he said companies need to prove they can attract employees with clinical training and effect cultural change.
He has a neutral rating for Walgreens shares with a price target of $ 48, below the level where the shares are currently trading, and an outperformance rating for CVS with a price target of $ 100, above the level. where the stocks are currently trading.
Walgreens will also be looking to expand into other areas. In the UK, Boots stores are known for their wide selection of premium makeup and beauty brands. Kehoe said store traffic has picked up as the country lifted restrictions related to the pandemic, making people feel more comfortable walking 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. Those brands currently represent a $ 750 million business and are expected to grow to $ 1 billion, Kehoe said.
Rice of Credit Suisse said executives at Walgreens also hinted at the reassessment of some of the companies owned by the company. He said investors will be watching whether Walgreens sells assets – such as some of its international operations – to help fund some of its growth in healthcare in the United States.
More vaccine demand yet to come
Covid-19 vaccines are expected to continue to boost activity over the coming year. Walgreens administered 34.6 million vaccines during the fiscal year ended Aug.31. He administered 13.5 million in the fourth quarter, or 21% of the total vaccines administered.
Walgreens estimates that it will administer 25 million Covid vaccines in the next fiscal year as some people receive booster shots and young children are expected to qualify for the shots.
But the company will also have to go through a long list of challenges retailers are currently facing. They include an increase in shoplifting, a shortage of workers and grunts in the supply chain linked to the pandemic.
For example, Walgreens is closing five other branches in San Francisco due to an organized retail theft. It recently announced its intention to raise its minimum wage to $ 15 an hour by Nov. 22 to keep up with other retailers who have raised wages or suspended benefits.
Kehoe said the company was staffing the company’s healthcare sector at a time when there was “a war for talent.” He said Walgreens, however, found it easier to hire healthcare professionals who were familiar with the business and “believed in the vision.”