Walgreens Q2 takes $6B hit from VillageMD investment

Walgreens Boots Alliance reported better-than-expected second-quarter sales but narrowed its earnings outlook, citing a “challenging” retail environment in the U.S. 

The pharmacy retailer and health care services company also reported a big net loss for the quarter due to a nearly $6 billion charge related to the decline in value of its investment in primary-care provider VillageMD. In October, Walgreens said it planned to close 60 underperforming VillageMD clinics and exit five markets as part of a comprehensive $1 billion cost-saving strategy. (As of March 26, VillageMD said it exited 140 locations, with plans plans to close about 160 clinics in total, reported Forbes.)

In Walgreens' earnings release, Tim Wentworth, who took the reins as CEO in October, said the company remains confident that it will meets it goal of achieving $1 billion in cost savings this year.

Walgreens’ net loss was $5.91 billion, or $6.85 per share, for the quarter ended Feb. 29, compared to net income of $703 million, or $.81 per share, in the year-ago period. Excluding certain items, including the $5.8 billion non-cash charge related VillageMD goodwill, the company’s adjusted earnings for the quarter were $1.20 per share.

Total revenue rose 6.3% to $37.05 billion, topping analysts’ estimates of $35.86 billion expected, with growth across its three business divisions.

Sales at Walgreens’ U.S. health-care division surged 33.2% to $2.18 billion, helped by VillageMD’s acquisition of Summit Health.

Sales in the U.S. retail pharmacy segments rose 4.7% to $28.86 billion. Pharmacy sales rose 8.2%. Retail sales fell 4.5%, with the company citing a challenging retail environment, channel shift and a weaker respiratory season.

The company’s international segment posted sales of $6.0 billion, up 6.6% from the year-ago quarter. At Boots UK, comparable pharmacy sales increased 1.7% and comparable retail sales increased 5.9% with growth across all categories.

“As we continue to operate in a challenging retail environment, we are taking actions to focus on customer engagement and value,” stated Wentworth in the release. “We are continuing to strategically review our portfolio over the next three months in an effort to ensure it drives growth and delivers value.”

On the earnings call, global CFO Manmohan Mahajan said Walgreens expects that the current economic backdrop will continue to negatively impact its U.S. retail sales in the short term.

Walgreens narrowed its fiscal 2024 adjusted earnings guidance to between $3.20 and $3.35 per share. That compares with the company’s previous outlook of $3.20 to $3.50 per share.