Walgreens to Shutter About 600 Stores Beginning in Spring 2018

DEERFIELD, Ill. — Walgreens Boots Alliance will spend nearly $450 million and close about 600 stores in spring 2018 as it begins to integrate Rite Aid Corp. stores into its 8,100-store footprint.

In the company's fourth-quarter earnings call, Chief Financial Officer George Fairweather said the closures will cost $450 million, but the resulting savings will yield $300 million annually by the end of fiscal 2020. Following regulatory clearance for the transaction, Walgreens is conducting a complete review of its expected combined U.S. store portfolio, which is expected to take place over an 18-month period beginning next spring.

On Sept. 19, Walgreens announced it had secured regulatory clearance for an amended and restated asset purchase agreement for 1,932 stores, three distribution centers and related inventory from Rite Aid for $4.375 billion in cash and other considerations.

In the past week, the first few Rite Aid stores have been acquired. Ownership of the remaining stores is expected to be transferred in phases, with the goal to complete store transfers by spring 2018. These transfers remain subject to closing conditions set forth in the agreement.

The company expects to complete integration of the acquired stores and related assets within the next three years, at an estimated cost of approximately $750 million, which will be reported as acquisition-related costs. In addition, the company plans to spend approximately $500 million of capital on store conversions and related activities.

In addition to an expected realization of $300 million in annual synergies, Walgreens said the strategic benefits of the transaction include: extending the Walgreens brand into additional communities, greater access to more customers, U.S. store network expansions, and broader coverage of both retail and pharmacy markets.

According to Walgreens, termination fees and costs related to the Rite Aid deal are responsible for the 22-percent drop in fourth-quarter earnings, which fell to $802 million from $1.03 billion. Same store sales in the retail pharmacy business rose 3 percent, and net sales were $30.1 billion, an increase of 5.3 percent from the same quarter one year ago.

For more on the Walgreens-Rite Aid merger and fourth-quarter earnings, visit Convenience Store News sister publication Retail Leader.