Walgreens renegotiated pharmacy reimbursement and shut 1,200 stores to slow its bleeding

Walgreens entered fiscal 2025 as one of the worst-performing stocks in the S&P 500, dragged down by an unsuccessful expansion into health services (VillageMD, Summit Health, CityMD, Shields Health Solutions), opioid-crisis settlement payouts, and reimbursement pressure on core pharmacy dispensing.

CEO Tim Wentworth's turnaround rested on two moves: renegotiating pharmacy reimbursement contracts covering about a third of Walgreens' payer agreements for 2025, equalizing payment for brand and generic drugs and creating new payment categories for high-cost drugs like GLP-1s that had previously been 'massively insufficient'; and shrinking the store footprint, with 70 stores closed in the first fiscal quarter as part of a pledge to close 1,200 of roughly 8,700 U.S. stores over three years.

Walgreens paired the contract and footprint changes with divestitures: selling down stakes in Option Care Health and drug distributor Cencora, and moving to exit VillageMD despite the medical chain's sales growing 9% year over year in the quarter.

The first-quarter results, reported in January 2025, showed early payoff: the U.S. Healthcare division's operating loss narrowed by a third and overall revenue beat expectations, even as the company's net loss for the quarter still grew year over year to $265 million on one-time closure and asset-sale costs.

U.S. Healthcare division operating loss narrowed to $325M from $436M a year earlier; revenue rose 7.5% YoY to $39.5B, beating estimates; shares rose 24% that day.

Reimbursement contracts, not just store count, were the mechanism squeezing Walgreens' core pharmacy business, so fixing the payment terms addressed the root cause rather than just the symptom.

The VillageMD-led health-services pivot had drained cash without returning it, so continuing to divest freed capital and management attention for the core pharmacy business.

Closing the weakest 1,200 of 8,700 stores concentrated remaining resources on a smaller, more profitable footprint instead of spreading them thin.

When a core business is being squeezed by contract terms, renegotiating the terms themselves — not just cutting costs — can move the numbers faster than store closures alone.

Walgreens continued the store-closure plan into the rest of fiscal 2025, with another 450 closures planned on top of the 70 from the first quarter. Management said its ultimate intent to exit VillageMD, Summit Health and CityMD remained unchanged, with sale proceeds earmarked for debt reduction; the VillageMD sale had not been finalized as of the report.