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Walgreens beats quarterly revenue estimates, but cuts profit outlook amid ‘challenging’ economy

A person walks past a Walgreens truck, owned by Walgreens Boots Alliance, Inc., in Manhattan, New York, United States, November 26, 2021.

Andrew Kelly | Reuters

Walgreens on Thursday reported second-quarter sales that beat Wall Street expectations, but lowered the upper end of its full-year adjusted earnings outlook, partly due to a weaker sales environment. “difficult” detail in the United States.

The company also posted a sharp net loss for the quarter as it took a hefty charge of nearly $6 billion related to the decline in the value of its investment in primary care provider VillageMD. Walgreens has closed 140 VillageMD clinics due to the company’s financial woes, something it sees as critical to its ongoing efforts to transform from a large pharmacy chain to a major health care company.

But Walgreens doesn’t believe VillageMD’s fees “will have a material impact on our financial condition or our ability to invest in any businesses going forward,” Manmohan Mahajan, Walgreens’ global chief financial officer, said during a earnings conference call Thursday.

The results come as new Walgreens CEO Tim Wentworth works to cut costs and lead the company out of a difficult situation with a slate of new leaders. Walgreens shares fell 30% last year as the company faced weakening demand for Covid products, low pharmacy reimbursement rates, an unstable surge in the health care sector and to a difficult macroeconomic environment.

In a statement released Thursday, the company said it is confident it will achieve its goal of saving $1 billion in fiscal 2024 through its ongoing cost-cutting 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 expected, based on a survey of analysts conducted by LSEG, formerly known as Refinitiv:

  • Earnings per share: $1.20 adjusted versus 82 cents expected
  • Income: $37.05 billion versus $35.86 billion expected

Walgreens cut its adjusted earnings forecast for fiscal 2024 to between $3.20 and $3.35 per share. This compares to the company’s previous guidance of $3.20 to $3.50 per share. Analysts surveyed by LSEG expect adjusted earnings of $3.24 per share for the full year.

Walgreens said the new forecast reflects the hurdles facing retailers in the United States and the early end of its sale-leaseback program. It also takes into account lower profits from Walgreens’ forward sale of shares of drug distributor Cencora, formerly known as AmerisourceBergen.

The company said better performance in its pharmaceutical services segment and a lower adjusted effective tax rate helped offset factors weighing on its earnings.

But Mahajan said Walgreens expects the current economic environment “to continue to negatively impact our U.S. retail sales in the near term.”

Wentworth noted on the call that the company is “exploring innovative ways to drive profitability and growth” in its retail pharmacy division, such as through new pharmacy reimbursement models.

The company did not give new revenue guidance for the fiscal year. Walgreens has not provided such a forecast since October, when it reported revenue between $141 billion and $145 billion.

The company reported a net loss of $5.91 billion, or $6.85 per share, for the quarter. That compares to net income of $703 million, or 81 cents per share, for the same period a year ago. A

Excluding certain items, including the $5.8 billion non-cash charge related to VillageMD, adjusted earnings per share were $1.20 for the quarter.

The company reported revenue of $37.05 billion during the quarter, up about 6% from the same period last year.

Walgreens sees growth across all divisions

The company said the increase reflects sales growth across its three business segments. But Walgreens’ U.S. healthcare division stood out as its sales jumped about 33% in the fiscal second quarter compared to the same period last year.

The segment’s revenue amounted to $2.18 billion.

The company said the increase in sales reflects VillageMD’s acquisition of multispecialty care provider Summit Health and growth across all segment businesses on a pro forma basis.

VillageMD sales increased 20% due to, among other factors, growth in the same clinics. Sales at the segment’s specialty pharmaceutical company, Shields Health Solutions, increased 13%, driven by new contracts and expansion of current partnerships.

Specialty pharmacies are designed to dispense medications with unique handling, storage and dispensing requirements, often for patients with complex diseases such as cancer and rheumatoid arthritis.

Walgreens and Village®

Source: Walgreens

Meanwhile, Walgreens’ U.S. retail pharmacy segment generated $28.86 billion in sales in the 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 over-the-counter medications as well as health and wellness, beauty, personal care and dietary products.

Walgreens said drugstore sales for the quarter increased 8.2% compared to last year’s quarter. Comparable sales climbed 8.7% due to inflation in branded drug prices and “strong execution” in pharmaceutical services, largely driven by the company’s vaccine portfolio.

Total prescriptions filled during the quarter, including vaccinations, were 305.7 million, an increase of more than 2% from the same period last year.

Retail sales for the quarter fell 4.5% from the year-ago quarter, and comparable retail sales declined 4.3%. The company pointed to a challenging retail environment and a weaker respiratory season, among other factors.

Walgreens’ international segment, which operates more than 3,000 overseas retail stores, reported revenue of $6.02 billion in the fiscal second quarter. This represents an increase of more than 6% compared to last year.

The company said sales at its UK subsidiary Boots rose 3%.

When asked on the call about Elie LillyWith Direct-to-Consumer’s new website aimed at expanding access to its weight-loss drug Zepbound, Wentworth did not comment specifically on the program.

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, et cetera does not not work effectively.”

As an example, Wenworth cited GLP-1s, a new class of drugs for weight loss and diabetes that includes Zepbound. These medications must be taken chronically, but their price is high, which can be a barrier for both patients, insurance plans, and other payers.

Walgreens is “uniquely positioned” to distribute medications and serve as a “clinically aligned partner” who can help patients safely complete their treatment, according to Wentworth.

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