Walgreens Boots Alliance reported stronger-than-expected second-quarter earnings Tuesday as the pharmacy chain accelerated cost-cutting measures and prepared for a $10 billion acquisition by private equity firm Sycamore Partners. The company also announced it is withdrawing its fiscal 2025 guidance amid preparations to go private later this year.
Adjusted earnings for the quarter ended February 28 came in at 63 cents per share, topping Wall Street's consensus estimate of 53 cents, according to data compiled by LSEG. Revenue for the quarter reached $38.59 billion, slightly ahead of analyst expectations of $38 billion and marking a 4.1% increase from the same period last year.
CEO Tim Wentworth, who took over in 2023 following Rosalind Brewer's abrupt departure, attributed the beat to "disciplined cost management and improvement in U.S. Healthcare," while acknowledging lingering challenges in retail. "We remain in the early stages of our turnaround plan, and continue to expect that meaningful value creation will take time, enhanced focus and balancing future cash needs with necessary investments to navigate a changing pharmacy and retail landscape," Wentworth stated.
The quarter's results were weighed down by a $4.2 billion impairment charge linked to a loss in value of Walgreens' U.S. retail pharmacy segment and its investment in the primary care provider VillageMD. Walgreens also recorded a net loss of $2.85 billion, or $3.30 per share, narrowing from the $5.91 billion loss reported during the same quarter a year earlier.
The company benefited from a $1 billion gain by selling part of its stake in pharmaceutical solutions company Cencora and marking investment gains in BrightSpring Health Services. However, legal expenses dragged on operating cash flow, including $969 million in payments tied to opioid settlements and a contract dispute with Everly Health Solutions dating to the Covid-19 pandemic.
U.S. retail pharmacy sales totaled $30.38 billion, outperforming estimates of $29.67 billion. Despite the revenue gains, the company faces margin pressure due to inflation-weakened consumer spending and reduced pharmacy reimbursement rates.
The looming deal with Sycamore Partners will bring Walgreens' public era to a close after nearly a century on U.S. markets. The company, once valued at over $100 billion, has seen its market capitalization plummet 90% since 2015, with its latest valuation standing at just over $9 billion. Walgreens confirmed the buyout is expected to close in the fourth quarter of this year.
Sycamore, known for acquiring distressed retail and consumer brands including Staples and Talbots, has said little publicly about its plans for Walgreens post-acquisition. The firm specializes in restructuring underperforming companies for eventual resale or relisting.
