Shares of Walgreens Boots Alliance Inc. experienced volatility on Thursday, ultimately ending with a gain, following the drugstore chain’s announcement of a substantial fiscal second-quarter net loss and a reduction in its full-year earnings forecast. However, the company also reported its largest beat for quarterly adjusted profit in at least five years.
Walgreens revealed that it had achieved more than half of its target to cut costs by $1 billion for the year, primarily driven by savings in the U.S. Retail Pharmacy business, including reductions in office-support roles and enhancements in the retail operating model. Chief Executive Tim Wentworth emphasized the continuation of an “intense review” of the company’s asset portfolio over the next three months to ensure each asset contributes to growth and delivers value.
Despite the positive developments, Global Chief Financial Officer Manmohan Mahajan warned of a “challenging retail environment,” which is expected to continue impacting retail sales in the short term, with consumers shifting discretionary spending away from the drug channel in search of value.
Following the earnings report release, Walgreens stock fluctuated, initially declining by as much as 3.9% before rebounding to rise by as much as 4.9%. Ultimately, the stock closed with a 1.3% gain in midday trading.
For the quarter ending Feb. 29, Walgreens reported a net loss of $5.9 billion, or $6.85 per share, compared to net income of $703 million, or 81 cents per share, in the same period the previous year. The loss included a noncash goodwill impairment charge of $5.8 billion related to VillageMD, a primary-care business in which Walgreens holds a controlling stake. This impairment was attributed to a lower long-term performance forecast provided by VillageMD management, which included the closure of approximately 160 clinics and slower trends in inpatient panel growth.
Additionally, Walgreens recorded a $455 million noncash charge related to assets in the U.S. Retail Pharmacy business. Adjusted earnings per share, excluding nonrecurring items, increased by 3.4% to $1.20, surpassing the FactSet consensus of 82 cents. The margin of the beat, with adjusted EPS exceeding expectations by 46.6%, marked the largest since at least the same quarter of 2019, according to available FactSet data.
Walgreens reported a notable increase in sales for the fiscal second quarter, with revenue growing by 6.3% to reach $37.05 billion, surpassing the FactSet consensus of $35.86 billion. U.S. retail pharmacy sales also saw a significant uptick, rising by 4.7% to $28.86 billion, exceeding expectations of $28.33 billion. This growth was driven by a 4.8% increase in same-store sales.
Pharmacy sales specifically experienced an 8.2% rise, attributed to higher prices of branded drugs, while retail sales declined by 4.5%. Factors contributing to the decrease in retail sales included a challenging retail environment, a weaker respiratory season, and reduced sales of seasonal and general merchandise.
The Walgreens U.S. healthcare business witnessed a substantial surge, with sales jumping by 33.2% to $2.2 billion, fueled by VillageMD’s acquisition of Summit Health. International sales also saw a positive trajectory, increasing by 6.6% to $6.02 billion, supported by favorable currency movements and strength in the wholesale business in Germany.
However, the company reported negative free cash flow of $610 million, marking a decline of $1.3 billion compared to the previous year. This was attributed in part to $615 million in payments for legal matters and a $379 million pension plan premium.
Looking ahead, Walgreens adjusted its fiscal 2024 guidance range for adjusted EPS to $3.20 to $3.35 from the previous range of $3.20 to $3.50. This adjustment lowered the midpoint of the guidance to $3.28 from $3.35.