Walgreens could 'aggressively' cut costs if privately owned, analyst says

If Walgreens Boots Alliance Inc. is bought by private equity firm Sycamore Partners, it would have more flexibility to "aggressively" reduce costs in order to address persisting industry challenges, according to an industry analyst. 

"As a private company, WBA [Walgreens Boots Alliance] would have more flexibility to make major changes to the business, in our view, and aggressively cut costs to try to tackle recent challenges with pharmacy operating margins and declining retail product sales from increased online competition," CFRA Research analyst Paige Meyer said. 

Meyer maintained her "hold" opinion on the shares, which are down around 60% year to date. 

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The company is in talks to sell itself to the private equity firm, with a deal expected to be signed by early next year, sources familiar with the matter told Reuters. However, Walgreens, which has been working with its advisers for the past few weeks, had also reached out to other potential buyers, sources told Reuters.

Walgreens declined to comment. Gxstocks reached out to Sycamore Partners. 

A merchandise aisle and a prescription sign at a Walgreens store in New York City.  (Lindsey Nicholson/UCG/Universal Images Group via Getty Images / Getty Images)

The reported talks come as the company was already working to revamp its operations under new leadership amid profitability challenges and declining margins.

In October, the company, which has been struggling with competition from rivals like Amazon, announced plans to close at least 1,200 stores over the next three years. This move is part of its effort to shut down a "significant" number of underperforming locations across the U.S. in response to these challenges.

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Walgreens previously told Gxstocks that its retail pharmacy business is central to its go-forward business strategy, but that "increased regulatory and reimbursement pressures are weighing on our ability to cover the costs associated with rent, staffing, and supply needs." 

George Hill, managing director and senior equity research analyst at Deutsche Bank, is anticipating more closures in the industry as it works to rightsize itself. 

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Hill previously told Gxstocks that the entire "industry seemed to be growing footprints and locations kind of faster than the need for pharmacies was growing." 

There are roughly 60,000 retail pharmacies in the U.S. Hill said the industry could decide that there needs to be closer to 35,000 or 40,000.