A person walks past a Walgreens truck owned by Walgreens Boots Alliance, Inc., in Manhattan, New York City, US, November 26, 2021.
Andrew Kelly | Reuters
Walgreens On Thursday, it reported fiscal second-quarter sales that beat Wall Street expectations, but lowered the top end of its full-year adjusted earnings forecast due in part to a “challenging” retail environment in the United States.
The company also posted a sharp net loss for the quarter as it posted a massive charge of about $6 billion related to the impairment of its investment in primary care provider VillageMD. Walgreens has closed its 140 VillageMD clinics amid the company's financial woes, which it views as essential to its ongoing efforts to transform from a major pharmacy chain into a major health care company.
But Walgreens doesn't believe the VillageMD charge “will have a significant impact on our financial condition, or our ability to invest across companies in the future,” Manmohan Mahajan, Walgreens' global chief financial officer, said during an earnings call Thursday.
The results come as Walgreens' new CEO, Tim Wentworth, works to cut costs and steer the company out of a difficult situation with a slate of new executives. Walgreens shares fell 30% last year as the company faced weak demand for Covid products, low pharmacy reimbursement rates, an unsteady push into health care and a challenging macroeconomic environment.
The company said in a statement on Thursday that it is confident that it will achieve its goal of saving $1 billion during fiscal year 2024 through its ongoing cost-reduction program. Walgreens has laid off employees, closed unprofitable stores and used artificial intelligence to make its supply chain more efficient, among other efforts.
Here's what Walgreens reported for the quarter, compared to what Wall Street was expecting, based on a survey of analysts conducted by LSEG, formerly known as Refinitiv:
Earnings per share: $1.20 adjusted vs. 82 cents expected Revenue: $37.05 billion vs. $35.86 billion expected
Walgreens narrowed its adjusted earnings guidance for fiscal 2024 to between $3.20 and $3.35 per share. This compares to the company's previous forecast of $3.20 to $3.50 per share. Analysts surveyed by LSEG expect full-year adjusted earnings of $3.24 per share.
Walgreens said the new guidance reflects the hurdles facing U.S. retailers and the early termination of the sales leaseback program. It also takes into account lower earnings due to Walgreens' forward sale of shares of drug distributor Cencora, formerly known as AmerisourceBergen.
The company said strong performance in its pharmacy services segment and a lower effective tax rate helped offset factors affecting its earnings.
But Walgreens expects the current economic backdrop to continue to negatively impact our U.S. retail sales in the short term, Mahajan said.
Wentworth noted on the call that the company is “exploring innovative ways to enhance profitability and growth” in its retail pharmacy division, such as new pharmacy reimbursement models.
The company did not provide new revenue forecasts for the fiscal year. Walgreens has not provided that guidance since October, when it said it expected sales of $141 billion to $145 billion.
The company reported a net loss of $5.91 billion, or $6.85 per share, during the quarter. This compares to net income of $703 million, or 81 cents per share, for the same period last year. a
Excluding certain items, including non-cash charges related to VillageMD of $5.8 billion, adjusted EPS was $1.20 for the quarter.
The company generated sales of $37.05 billion in the quarter, an increase of approximately 6% from the same period last year.
Walgreens sees growth in all departments
The company said that this increase reflects sales growth across its three business sectors. But Walgreens' US healthcare division stood out with sales jumping about 33% in the second fiscal quarter compared to the same period last year.
This sector's revenues amounted to $2.18 billion.
The company said the sales rise reflects VillageMD's acquisition of multi-specialty care provider Summit Health and growth across all companies in the sector on a pro forma basis.
VillageMD's sales rose 20% due to growth in the clinic itself, among other factors. Sales from the pharmacy company specializing in this sector, Shields Health Solutions, rose 13%, due to new contracts and expansions of existing partnerships.
Specialty pharmacies are designed to deliver medications with unique handling, storage and distribution requirements, often to patients with complex conditions such as cancer and rheumatoid arthritis.
Walgreens and VillageMD
Source: Walgreens
Meanwhile, Walgreens' U.S. retail pharmacy segment generated sales of $28.86 billion in its fiscal second quarter, an increase of nearly 5% from the same period last year.
This segment operates more than 8,000 pharmacies across the United States, which sell prescription and nonprescription medications as well as health, wellness, beauty, personal care, and nutritional products.
Walgreens said drugstore sales for the quarter rose 8.2% compared to the same quarter last year. Comparable sales rose 8.7% due to branded drug price inflation and “strong execution” in pharmacy services, largely driven by the company's vaccine portfolio.
Total prescriptions filled this quarter including immunizations were 305.7 million, an increase of more than 2% from the same period last year.
Retail sales for the quarter were down 4.5% compared to the previous quarter, and comparable retail sales were down 4.3%. The company cited the difficult retail environment and weaker breathing season, among other factors.
Walgreens' international segment, which operates more than 3,000 retail stores abroad, generated sales of $6.02 billion in its fiscal second quarter. This represents an increase of more than 6% over the same period last year.
The company said that sales of its UK subsidiary, Boots, rose by 3%.
When asked on the call about Eli LillyNew direct-to-consumer website aimed at expanding access to weight loss drug Zepbound Wentworth would not comment on the program specifically.
But he noted that the company is a “natural partner” for pharmaceutical companies that may “want to go directly to patients for a particular product, where the normal supply chain, reimbursement model, etc. doesn't work as effectively.”
As an example, Wenworth pointed to GLP-1s, a new class of weight loss and diabetes drugs that includes Zepbound. These medications must be taken chronically but carry significant costs, which can be an obstacle for both patients, insurance plans, and other payers.
Walgreens is “uniquely positioned” to distribute medications and serve as a “clinically aligned partner” that can help patients navigate their treatment safely, according to Wentworth.
