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Like Amazon.com Inc (NASDAQ: AMZN), Walgreens Boots Alliance (NASDAQ: WBA) is going for its piece of the healthcare pie. With its fiscal second quarter report, it topped estimates, but lowered the higher end of its full-year adjusted earnings guidance in response to a challenging macroeconomy. The new CEO, Tim Wentworth, continues to navigate the company out of a rough spot by slashing costs and solidifying the team, but the company’s healthcare transformation took its toll on leadership the bottom line.
Fiscal second quarter highlights
For the quarter ended on February 29th, Walgreens recorded sales grew about 6.3% to $37.05 billion, surpassing LSEG’s estimate of $35.86 billion as sales grew across its three business segments. US retail pharmacy segment brought in $28.86 billion as revenue grew almost 5%.
What particularly stood up was the US health-care division whose sales expanded 33% YoY to $2.18 billion, owed to VillageMD’s acquisition of multispecialty care provider Summit Health and business growth on a pro-forma basis. Same clinic growth fueled VillageMD sales which grew 20%. New contracts and current partnershuip expansions fueled the segment’s specialty pharmacy company, Shields Health Solutions, to 13% growth.
Adjusted earnings of $1.20 also topped LSEG’s estimate of 82 cents.
But due to a hefty nearly $6 billion charge related to the decline in value of its investment in primary-care provider VillageMD, Walgreens posted a steep net loss of $5.91 billion, or $6.85 per share, swinging from last year’s comparable quarter for which it was made a net income of $703 million, or 81 cents per share.
The net loss reflected Walgreens’ hefty costs is paying for its transformation from being a major drugstore chain to becoming a large health-care company. However, CFO Manmohan Mahajan stressed that VillageMD charge is not expected to have a significant impact on the company’s financial position, or its ability to invest across businesses going forward.
Outlook
Walgreens narrowed its prior fiscal 2024 adjusted earnings guidance range from $3.20 to $3.35 per share, lowering the higher end from $3.50 per share due to hurdles retailers are facing amid an unfavorable economy, among other factors.
Walgreens is reshaping its strategy along the way.
Walgreens has had a hard time over the last few years, and the battle is to become even harder with Amazon announcing its entry into the immediate delivery pharmacy market. Amazon announced the expansion of same day delivery service for Amazon Pharmacy in New York and Los Angeles. But, getting a piece of the $4.5 trillion healthcare industry doesn’t come easy even for Amazon. Even the mighty e-commerce titan found its primary care strategy difficult to scale.
Last year, Walgreens shares tanked 30% last year in response to plummeting demand for Covid products, low pharmacy reimbursement rates, along with its unsteady push into health care amid an unstable US economy. With the ongoing cost savings program that includes trimming its workforce, closing unprofitable stores and using AI to boost the efficiency of its supply chain, Walgreens reiterated it is on track to meet its goal of saving $1 billion during fiscal 2024, as it continues to seek innovation ways to increase profitability and growth of its retail pharmacy division. With Amazon’s latest move, Walgreens’ challenges only got worse.
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This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.
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This article Walgreens Is Paying A Hefty Cost For Its Healthcare Transformation But It’s Not Giving Up Despite Scary Competition From Amazon originally appeared on Benzinga.com
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