Introduction

Walgreens Boots Alliance, once a cornerstone of American retail, has faced a dramatic fall from grace over the past decade. The company's journey, from a nearly $100 billion valuation in 2015 to a $10 billion take-private deal in 2025, is a cautionary tale of an iconic brand struggling to adapt to seismic shifts in the healthcare and retail landscapes.

History and Growth

Founded in 1901 as a single Chicago drugstore by Charles R. Walgreen Sr., Walgreens grew to become the second-largest pharmacy chain in the United States, known for its ubiquitous presence on street corners across the country. The company experienced rapid expansion in its early years, reaching over 500 locations by 1930. In 2014, Walgreens merged with the Swiss-based Boots Alliance, forming Walgreens Boots Alliance and creating a global leader in retail pharmacy, wholesale, and distribution.

Challenges and Competition

However, the company's dominance was increasingly challenged by the rise of e-commerce giants like Amazon, as well as disruptive entrants in the healthcare space, such as the ill-fated Theranos. Walgreens also faced significant challenges related to opioid-related litigation and claims, as well as macroeconomic pressures like inflation and supply chain disruptions. These factors contributed to declining sales, earnings, and the company's market value.

Financials

Walgreens' financial performance reflected these challenges. In fiscal year 2024, the company reported annual revenue of $147.66 billion, a decline from $139.08 billion in fiscal 2023. Net income also plummeted, from a loss of $3.08 billion in 2023 to a staggering loss of $8.64 billion in 2024. Operating cash flow declined from $2.26 billion in 2023 to $1.02 billion in 2024, while free cash flow was a mere $141 million in 2023, turning negative to -$363 million in 2024.

In the most recent quarter, Walgreens reported revenue of $39.46 billion, representing a 7.5% increase year-over-year. However, the company posted a net loss of $265 million for the quarter, primarily due to higher non-cash costs related to the Footprint Optimization Program and a non-cash charge related to fair value adjustments on variable prepaid forward derivatives.

Liquidity

The company's liquidity situation also deteriorated, with a current ratio of 0.64 and a quick ratio of 0.31 as of August 31, 2024. Walgreens' debt burden also increased, with total debt of $32.85 billion and a debt-to-equity ratio of 2.75 as of the same date. The company reported cash and cash equivalents of $1.32 billion as of the most recent quarter, with $5.8 billion in available credit capacity under committed revolving credit facilities. Additionally, Walgreens had $22.7 billion in total operating lease obligations and $1 billion in total finance lease obligations.

Strategic Moves

In the face of these challenges, Walgreens made several strategic moves, including a focus on cost-cutting through its "Footprint Optimization Program." This initiative called for the closure of 900 to 1,000 underperforming stores across the U.S., with the company expecting $100 million in adjusted operating income benefits from the program. In 2022, Walgreens Boots Alliance announced a strategic review to optimize its operations and financial position, which included renegotiating pharmacy reimbursement contracts and exploring the sale of non-core assets like its VillageMD healthcare business. However, these efforts were not enough to stem the tide of declining performance.

Impact of COVID-19

The company's struggles were further exacerbated by the COVID-19 pandemic, which disrupted consumer behavior and put additional pressure on Walgreens' already strained business model. The pandemic's impact was evident in the company's fiscal 2023 results, where a weaker cough, cold, and flu season negatively affected comparable retail sales, which declined 4.6% during the year.

Business Segments

Walgreens Boots Alliance operates through three reportable segments: U.S. Retail Pharmacy, International, and U.S. Healthcare.

The U.S. Retail Pharmacy segment, which includes the Walgreens business, saw sales increase 6.6% to $30.87 billion in the most recent quarter. Pharmacy sales, representing 80.1% of the segment's sales, increased 10.4%, while retail sales decreased 6.2%. The segment's operating income decreased to $17 million from $297 million in the prior year quarter, reflecting lower retail sales and higher non-cash costs related to the Footprint Optimization Program.

The International segment, consisting of pharmacy-led health and beauty retail businesses outside the U.S. and a pharmaceutical wholesale business in Germany, reported a 10.2% increase in sales to $6.42 billion. Operating income for the segment increased 21.4%, driven by strong retail performance in Boots UK and growth in Germany.

The U.S. Healthcare segment, which includes VillageMD, Shields Health Solutions, and CareCentrix, saw sales increase 12.2% to $2.17 billion. However, the segment's operating loss decreased by $110 million to $325 million, reflecting higher contributions from VillageMD and Shields, as well as continued cost savings.

Guidance and Outlook

For fiscal year 2025, Walgreens reaffirmed its adjusted EPS guidance of $1.40 to $1.80. The company continues to expect a $100 million benefit in adjusted operating income from its footprint optimization program. However, Walgreens now expects retail comparable sales for fiscal 2025 to decline approximately 4% to 5%, compared to their prior outlook of a 2% to 3% decline, due to the weaker cough, cold, and flu season and continued challenging consumer discretionary spending.

The recently announced NADAC (National Average Drug Acquisition Cost) changes are expected to have less than a $50 million negative impact on pharmacy margin for the remainder of the year, which is less than their original expectations.

Going Private

In the face of these challenges, Walgreens' leadership decided to take the drastic step of going private. In March 2025, the company announced a $10 billion deal to be acquired by private equity firm Sycamore Partners, a move that would end nearly a century of public trading for the once-mighty pharmacy chain.

The purchase price represented a stunning 90% decline from Walgreens' $100 billion valuation in 2015, reflecting the extent of the company's fall from grace. Sycamore Partners, known for its expertise in retail turnarounds, will now have the task of reviving the Walgreens brand and charting a path forward in the rapidly evolving healthcare and retail landscapes.

Conclusion

The Walgreens saga serves as a cautionary tale for once-dominant companies that fail to adapt to disruptive forces. As the company transitions to private ownership, it will face the challenge of reinventing itself in a highly competitive and constantly evolving environment. Investors and industry observers will closely watch Sycamore's efforts to breathe new life into the Walgreens brand and restore the company's former glory, if that is even possible.