Walgreens Reports $2.8 Billion Loss As Private Equity Preps Takeover

Walgreens Boots Alliance Tuesday reported a $2.8 billion loss in its second quarter thanks to a large impairment charge related to its struggling doctor-staffed clinic investment in VillageMD.

Walgreens fiscal second quarter results for the period ending February 28 of this year are the first quarterly earnings reported since the company a month ago said it will become privately held in a takeover by the investment firm Sycamore Partners for more than $10 billion.

Walgreens said the $2.8 billion loss, or $3.30 per share, compared to a loss of $5.9 billion, or $6.85 in the year-ago quarter.

The Sycamore deal, which pays $11.45 per share, comes after years of Walgreens’ pharmacy closings and plummeting stock in part due to a disastrous rollout of VillageMD’s clinics attached to stores. Sycamore, a private equity firm specializing in consumer, distribution and retail-related investments, also agreed to “one non-transferable right” to receive up to $3 in cash per Walgreens Boots Alliance share “from the future monetization of WBA’s debt and equity interests in VillageMD, which includes the Village Medical, Summit Health and CityMD businesses,” the companies said of Walgreens’ primary care businesses.

On Tuesday, Walgreens said the U.S. healthcare segment that includes VillageMD had second quarter sales of $2.2 billion, which was down $23 million, “reflecting lower fee-for-service and risk-based revenue at VillageMD, including the impact of clinic closures, partially offset by growth in Shields and CareCentrix,” the company said. “VillageMD sales decreased 6.2 percent, CareCentrix sales increased 6.5 percent and Shields sales increased 29.7 percent.”

Walgreens total sales in the quarter rose 4.1 percent year-over-year to $38.6 billion, which the company attributed to growth in the U.S. retail pharmacy and international segments.

“Second quarter results reflect disciplined cost management and improvement in U.S. Healthcare, which were partially offset by weaker front-end results in U.S. Retail Pharmacy, while significant legal settlements resulted in continued negative free cash flow,” Walgreens chief executive officer Tim Wentworth said. “We remain in the early stages of our turnaround plan, and continue to expect that meaningful value creation will take time, enhanced focus and balancing future cash needs with necessary investments to navigate a changing pharmacy and retail landscape.”

The Sycamore deal comes after Walgreens, which had a market value of more than $100 billion a decade ago, undertook the failed VillageMD in-store clinic rollout that led it to close hundreds of stores to reduce debt and stem financial losses.

Under former chief executive Roz Brewer, Walgreens spent billions of dollars investing in and operating physician-staffed clinic operator VillageMD.

Walgreens invested more than $6 billion in VillageMD under Brewer to take a controlling stake, but the company has already scaled back dramatically on the expansion of doctor practices and clinics the company opened. In 2020, Walgreens said it planned to open 500 to 700 “Village Medical at Walgreens” physician-led primary care clinics in more than 30 U.S. markets over five years, with the “intent to build hundreds more thereafter.”

But Wentworth, who replaced Brewer in October 2023, said a year ago that the company and its partner VillageMD had slowed the number of clinic openings in part because the operators haven’t been able to fill their “patient panels,” which are a certain number of individual patients under the care of a specific provider. The billions of dollars in losses on the VillageMD investment was largely to blame for a net loss of more than $8 billion for the company’s fiscal 2024. And those losses are continuing with Tuesday’s report.

“Second quarter operating loss was $5.6 billion compared to an operating loss of $13.2 billion in the year-ago quarter,” Walgreens said. “Operating loss in the current quarter includes a $3 billion non-cash impairment charge related to VillageMD goodwill and other long-lived assets, which resulted in a $1.9 billion charge attributable to Walgreens Boots Alliance (WBA), net of tax and non-controlling interest, and a $2.3 billion non-cash impairment charge attributable to WBA, net of tax, primarily related to U.S. Retail Pharmacy goodwill. Operating loss in the year-ago quarter includes a $12.4 billion non-cash impairment charge related to VillageMD goodwill, which resulted in a $5.8 billion charge attributable to WBA, net of tax and non-controlling interest, and a $455 million non-cash impairment charge related to certain long-lived assets in the U.S. Retail Pharmacy segment.”

Walgreens U.S. retail pharmacy segment reported second quarter sales of $30.4 billion, which was up 5.3 percent from the year-ago quarter. “Pharmacy sales increased 8.9 percent and comparable pharmacy sales increased 12.2 percent in the quarter, each benefiting from higher branded drug inflation and prescription volume,” Walgreens said.