Walgreens recently reported its fiscal second-quarter sales results, which exceeded Wall Street’s expectations. However, the company decided to adjust its full-year adjusted earnings outlook, mainly due to the challenging retail environment in the U.S. Despite a high net loss for the quarter and impairment charges related to VillageMD clinics, Walgreens is focused on transforming from a traditional drugstore chain to a large health-care player in the market. The steep drop in Walgreens’ shares over the past year, cost-cutting measures, and new CEO’s strategies reflect the urgency in addressing the issues faced by the company.
For the quarter, Walgreens reported earnings per share of $1.20, which were adjusted. The revenue for the quarter was $37.05 billion, surpassing the expected $35.86 billion. However, the company made changes to its adjusted earnings guidance for fiscal 2024, narrowing it down to $3.20 to $3.35 per share. While analysts had predicted full-year adjusted earnings of $3.24 per share, Walgreens’ revised outlook indicates the challenges in the retail sector and the wind-down of certain programs affecting its profitability. The company’s positive performance in the pharmacy services segment and a lower adjusted tax rate helped to balance out the earnings pressures faced.
Net Loss and Segment Performance
Walgreens reported a significant net loss of $5.91 billion, or $6.85 per share, for the quarter, mainly due to the non-cash goodwill impairment charge associated with VillageMD. Despite the loss, the company’s overall sales increased by around 6% from the same period last year, showcasing growth across its business segments. Of particular note is the U.S. health-care division, which experienced a notable 33% sales jump in the fiscal second quarter compared to the prior year. The robust performance was attributed to the acquisition of Summit Health by VillageMD and growth within all businesses in the segment. Specialty pharmacy sales also saw a double-digit increase, driven by new contracts and expanding partnerships.
In terms of retail pharmacy, Walgreens’ U.S. segment generated sales of $28.86 billion, marking almost a 5% increase from the previous year. With over 8,000 drugstores across the country, the company reported a rise in pharmacy sales due to price inflation in brand medications and successful execution in pharmacy services. Despite a decline in retail sales and comparable retail sales, total prescriptions filled, including immunizations, increased by more than 2%. The international segment, operating over 3,000 retail stores abroad, showed growth of more than 6% in sales from the prior year period. The U.K. subsidiary, Boots, contributed to this growth, with sales increasing by 3%.
To address the ongoing challenges, Walgreens has implemented various cost-cutting measures, such as layoffs, store closures, and supply chain improvements through artificial intelligence. The company is confident in achieving its goal of $1 billion in savings by fiscal 2024. Despite the hurdles facing retailers in the U.S. and uncertainties in the macroeconomic environment, Walgreens is focused on its transformation into a health-care-focused entity.
Walgreens’ quarter report highlights both the opportunities and challenges facing the company. The decision to adjust earnings outlook, the impairment charges related to VillageMD, and the strategies to shift towards a health-care company indicate a critical juncture for Walgreens. By addressing the issues in the retail environment, focusing on cost-cutting, and leveraging the growth potential in health care, Walgreens aims to navigate through the challenges while capitalizing on emerging opportunities in the market.