Walgreens recently reported fiscal second-quarter sales that exceeded expectations on Wall Street. Despite this positive news, the company decided to lower the high end of its full-year adjusted earnings outlook. This adjustment was partially due to the difficulties faced by the retail environment in the United States. Walgreens attributed part of this change to a hefty goodwill impairment charge of nearly $6 billion related to its primary-care provider, VillageMD. The company has been closing numerous VillageMD clinics due to financial woes and views this business as crucial to its transformation efforts from a major drugstore chain to a large health-care company.
Walgreens has taken multiple steps to address its financial challenges. The new CEO, Tim Wentworth, has been leading efforts to reduce costs and navigate the company through a tough period. The company’s shares fell by 30% last year as it encountered weakening demand for Covid products, low pharmacy reimbursement rates, and struggled to make headway in the health care sector. In response to these difficulties, Walgreens has been implementing cost-cutting measures, including laying off employees, closing unprofitable stores, and leveraging artificial intelligence to optimize its supply chain. One of the highlights mentioned in the release was the goal of saving $1 billion by the end of fiscal 2024 through ongoing cost-cutting initiatives.
Despite the challenges faced by Walgreens, the company reported earnings per share of $1.20 adjusted for the quarter. The revenue for the quarter stood at $37.05 billion, surpassing the Wall Street expectations of $35.86 billion. However, Walgreens adjusted its fiscal 2024 guidance for earnings to $3.20 to $3.35 per share, narrowing the range from its prior forecast of $3.20 to $3.50 per share. While analysts expect full-year adjusted earnings of $3.24 per share, Walgreens acknowledged the obstacles confronting retailers in the U.S. and the impact of an early wind-down of sales-leaseback programs in its new guidance.
Walgreens highlighted the impacts of its cost-cutting and transformation efforts across its business segments. The U.S. health-care division showed a remarkable 33% increase in sales, reaching $2.18 billion in the fiscal second quarter. This growth was attributed to VillageMD’s acquisition of multi-specialty care provider Summit Health and the expansion of other businesses in the segment. Additionally, Walgreens’ U.S. retail pharmacy segment reported a 5% increase in sales, generating $28.86 billion in revenue for the quarter. The company highlighted a rise in pharmacy sales, driven by price inflation in brand medications and strong execution in pharmacy services.
While Walgreens saw growth in its U.S. health-care and retail pharmacy segments, it faced challenges in its retail sales. Total prescriptions filled in the quarter, including immunizations, increased by more than 2% compared to the prior year. However, retail sales experienced a decline of 4.5%, with comparable retail sales dropping by 4.3%. Walgreens attributed this decline to a challenging retail environment and a weaker respiratory season. On the international front, Walgreens’ international segment, which operates more than 3,000 retail stores abroad, saw a 6% increase in sales, amounting to $6.02 billion in the fiscal second quarter. The company cited a 3% growth in sales from its U.K. subsidiary, Boots.
Walgreens continues to navigate a challenging retail landscape while striving to transform its business to better align with the changing health-care market. Despite facing setbacks in various areas, the company remains focused on cost-cutting measures and enhancing its efficiency to drive long-term growth and success.