Walgreens Boots Alliance joined other pharmacy chains in the past year in shifting its focus from primarily retail to healthcare for guiding future growth and acquisitions. Now it's treating the side effects of that rapid expansion by focusing on profitability with the closing of roughly 60 of its VillageMD healthcare clinics.

The Deerfield, Illinois-based pharmacy chain with 13,000 locations in the United States, Europe and Latin America discussed plans to focus on profitability with the slashing of $1 billion in costs, including the shutting of underperforming stores, in reporting its most recent earnings on Thursday. Its newly appointed CEO, Tim Wentworth, briefly addressed Wall Street analysts on the conference call.

Walgreens, like its rival CVS, has been pivoting its business to move beyond merely being a pharmacy retailer to providing healthcare services, which it currently provides under a separate division at the company. In November Walgreens' VillageMD unit said it had struck a $8.9 billion deal to acquire Summit Health, parent of urgent-care chain CityMD.

At the time, Walgreens owned a controlling stake of roughly 53% of VillageMD, which itself has been growing at a fast clip but not in a particularly profitable way, according to Walgreens' officials.

The company's U.S. healthcare unit "has scaled to nearly $8 billion in sales in two years," but is "now shifting focus to profitable growth," according to a Walgreens Boots Alliance investor presentation released Thursday.

VillageMD has quickly expanded, "with legacy business achieving [over] 46% pro forma sales growth" in fiscal 2023, but that rapid growth "has happened with an inefficient cost profile," the presentation said, and the "focus is now on unlocking significant embedded" profitability potential.

To achieve that goal, Walgreens plans to close, or might enter into partnerships for some of, about 60 VillageMD locations in roughly five markets, according to John Driscoll, the company's executive vice president and president of its U.S. healthcare segment. With the exit from those unprofitable regions, CityMD plans to focus on going deeper into strategic markets and realigning its operating costs, he said.

"We will continue to grow in 2024, but with a renewed focus on more profitable growth," he said, citing the need for "increased density in our highest-opportunity markets."

In terms of the closings, Driscoll was referring to VillageMD's Village Medical practices at or adjacent to Walgreens' locations, according to a Walgreens spokeswoman.

"These exits may take a variety of forms, including sales and hybrid-equity arrangements," she said in an email to CoStar News. "As we exit these markets, our long-term focus will be on achieving density in those markets with the greatest potential to best serve patients with our portfolio of services and capabilities."

Walgreens' healthcare division posted a $294 million loss in its fiscal fourth quarter, compared to $338 million in the prior-year period. Overall, Walgreens sales increased 9.2% from the year-earlier quarter to $35.4 billion.

"Walgreens’ healthcare division is making big losses and it is clear that not all locations are profitable or viable," Neil Saunders, managing director of GlobalData, told CoStar News in an email. "Walgreens cannot afford to subsidize losses so is taking a more aggressive stance on shutting under-performing clinics. This isn’t a retrenchment from healthcare as the company will continue to expand its footprint; it’s more of a step to put its house in order."

Walgreens declined to comment on Saunders' remarks.

On the earnings call, Interim CEO Ginger Graham said the company had earmarked $1 billion in savings for the next fiscal year through a variety of measures, including the reduction of its headquarters costs, closing unprofitable locations, reducing hours at some of its pharmacies and slicing $600 million from its capital-spending budget.

Walgreens has had a bumpy ride attempting to transform its business. In September, the company announced that CEO Rosalind Brewer had stepped down after fewer than three years at the helm. Her replacement, Wentworth, is a veteran of Express Scripts, one of the biggest U.S. pharmacy managers.

During the earnings call, Graham said Walgreens wants employees back in the office, with high-level executives back this month and others in November.

"We're convinced that our ability to act quickly, deliver priority projects and respond to business demands will be improved by being together,” she said.