Walgreens reported what it called its most difficult quarter in years on Tuesday, saying it will aim to cut another $500 million in costs annually by 2022, hitting workers and managers who are already feeling the pinch and spurring a makeover in many of its stores.
The Deerfield-based pharmacy chain had already cut bonuses for store managers and others last year -- in many cases by thousands of dollars each -- outraging managers who said they relied on those annual payments.
Walgreens also made changes to other benefits, said James Kehoe, global chief financial officer and executive vice president. He said during a conference call with analysts Tuesday that "lower bonus accrual" helped offset inflation and investments in store workers.
"The estimated bonus payout for the year has been substantially reduced," Kehoe said.
The $500 million in new cost-cutting announced Tuesday comes on top of December's announcement of $1 billion in annual costs Walgreens pledged to cut within three years.
Walgreens may reduce its information technology spending by $500 million to $600 million, Kehoe said.
Despite that, the company did not announce any changes to its plans to move 1,800 employees to Chicago's former main post office, Walgreens spokesman Brian Faith said after the call. The company confirmed plans in June to relocate employees to 200,000 square feet in the riverfront building, including digital and IT employees.
But the cutbacks will hit the Rite Aid chain, which Walgreens acquired in 2017. Walgreens said it would close more Rite Aid stores than it had initially planned -- 750, up from 600. Walgreens spent more than $4 billion to acquire its former rival's nearly 2,000 stores.
Faith declined to comment further after the call.
Along with the cost-dutting, Walgreens said it planned to revamp many of its stores, highlighting partnerships with other companies that it hopes will spur growth.
The store has already partnered with online beauty retailer Birchbox, which has shops inside Walgreens' beauty departments. It's also partnered with grocery chain Kroger to offer food pickup at some Walgreens stores, and it has partnered with LabCorp to provide lab testing in stores. It's also working with Sprint to offer wireless services and advice on mobile services and products.
"Our stores have had a one-size-fits-all mindset since the Walgreens strategy was created in the U.S. in particular, so we are reformatting and reshaping our stores," Alex Gourlay, Walgreens' co-chief operating officer, said.
For investors, it was hard to find reason to cheer the results.
Walgreens' operating income fell more than 23 percent, to $1.5 billion, the company said. The company said it had profit of $1.24 per share. Earnings, adjusted for one-time gains and costs, slipped 5 percent to $1.64 per share in the second quarter.
The nation's largest drugstore chain now expects adjusted earnings per share growth to be flat this year, compared with a previous forecast for growth of 7 to 12 percent that it had reaffirmed in late December.
The results Tuesday did not meet Wall Street expectations. FactSet says analysts were expecting earnings of $1.72 per share.
"A number of the trends we had been expecting and preparing for impacted us significantly more quickly than we had anticipated," Stefano Pessina, executive vice chairman and CEO, said.
Moving forward, the company will focus on going increasingly digital, "transforming and restructuring" its retail offerings, and making its pharmacies destinations for health care needs, Pessina said
Walgreens Boots Alliance runs more than 18,500 stores in 11 countries and, along with CVS Health Corp., is one of the two biggest chains in the U.S. drugstore market.
Walgreens shares have decreased 7 percent since the beginning of the year. The stock has risen roughly 1 percent in the last 12 months. In June of last year, Walgreens shares plummeted following news that Amazon was acquiring PillPack, an online pharmacy headquartered in Massachusetts that delivers medications in presorted doses.
The Associated Press contributed.