Walgreens Boots Alliance reported a net loss of $5.9 billion for the quarter ended Feb. 29, primarily due to a $5.8 billion impairment charge on its investment in VillageMD, a cash-burning operator of doctors' clinics. The impairment comes at a time when the pharmacy operator is focusing on improving profitability under new CEO Timothy Wentworth, who announced a $1 billion cost-cutting plan in October.
The strategy shift follows years of investment in VillageMD during the tenure of former CEO Rosalind Brewer, who aimed to expand the company's reach as a healthcare provider. Walgreens had invested over $6 billion to hold a majority stake in VillageMD and supported its acquisition of urgent care provider Summit Health with another $3.5 billion investment in 2022.
Despite the steep net loss, Walgreens reported fiscal second-quarter sales that beat Wall Street's expectations. The company booked sales of $37.05 billion in the quarter, a roughly 6% jump from the same period a year ago, reflecting growth across its three business segments. However, Walgreens lowered the high end of its full-year adjusted earnings outlook, citing a "challenging" retail environment in the U.S.
"The cut in forecast now means there is a lower base for financial-year 2025 earnings to grow from. It only heightens scrutiny on what WBA's core earnings power actually is," said Leerink Partners analyst Michael Cherny in a note.
Walgreens has been grappling with decreased spending on personal care and beauty products by inflation-weary consumers, exacerbating the hit from waning demand for its COVID-19 vaccines and testing kits. Shares of the company were down 1.4% in premarket trading.
On an adjusted basis, Walgreens reported earnings of $1.20 per share for the quarter, compared with analysts' average estimate of 82 cents per share, according to LSEG data. The company now expects an adjusted profit of $3.20 to $3.35 per share for its financial year ending Aug. 31, retaining the lower end of the $3.20 to $3.50 per share range it gave last January.
Walgreens' U.S. health-care division stood out as sales jumped about 33% in the fiscal second quarter compared with the same period a year ago, reaching $2.18 billion. The increase reflects VillageMD's acquisition of multispecialty care provider Summit Health and growth across all businesses in the segment on a pro-forma basis.
Meanwhile, Walgreens' U.S. retail pharmacy segment generated $28.86 billion in sales, an increase of almost 5% from the same period last year. Pharmacy sales for the quarter rose 8.2%, while retail sales fell 4.5% due to a challenging retail environment and a weaker respiratory season.
The company's international segment, which operates more than 3,000 retail stores abroad, posted $6.02 billion in sales in the fiscal second quarter, an increase of more than 6% from the year-ago period.
