• by Sarah Mahoney  @mahoney_sarah, January 4, 2024

Walgreens Boots Alliance just reported its first quarterly results under new leadership, resulting in another soup sandwich. Sales increased 10% to $36.71 billion, up from $33.38 billion in the first quarter of last year, thanks to gains in pharmacy transactions. But sales in the company's retail division fell 6.1%.

Walgreens posted a net loss of $278 million -- better than expected -- compared to $3.82 billion in the year-ago period.

To cut costs, the company announced it was slashing its dividend in half, worrying investors.

As it looks for additional ways to save money throughout its sprawling holdings, “everything is on the table,” said Tim Wentworth, chief executive officer, in a webcast discussing the results.

It’s been a tough year for the company, including an executive exodus. Wentworth, a veteran of Cigna, took the helm in October, signaling an increased focus on the healthcare properties Walgreens has acquired. He replaced Rosalind Brewer, who had joined the company in 2021 from Starbucks, at a moment when Walgreens vowed to focus on consumer-centricity.

Walgreens' chief financial officer also left. And amid layoffs trimming 5% of its corporate workforce in November, chief marketing officer Linh Peters also departed after joining in 2022 from Calvin Klein. Chief medical officer Kevin Ban also left.

The Deerfield, Illinois-based company said it sees potential for a “cost plus” model for pharmacy reimbursement, which allows retail pharmacies to be reimbursed for the cost of the drug and a markup. CVS, one of Walgreens' largest competitors, has already said it is pursuing “cost plus” reimbursements.

By division, retail sales dropped 6.1%, attributed to macroeconomic-driven consumer trends, a weaker flu season and Thanksgiving holiday store closures. Pharmacy sales climbed 10%.

Revenue in the U.S. healthcare business increased to $1.9 billion, reflecting the acquisition of Summit Health by VillageMD and organic growth. Sales at VillageMD grew 14%, and Shields increased 27%. That segment’s operating loss came in at $436 million, even with the same period in 2023.

“Macroeconomic conditions are clearly difficult for retailers, and I fully acknowledge the structural headwinds in our core pharmacy business and the growing pains in our healthcare segment,” Wentworth said. “None of this is a surprise to me. I came to WBA eyes wide open, with a clear mandate to act with everything on the table in terms of putting our business on the right track.”

It’s an ultra-competitive category, with Rite Aid continuing to close stores as part of its bankruptcy process that began last year.

And so many moving pieces have made many observers lukewarm about Walgreens' prospects. Deutsche Bank currently has a “hold” rating on Walgreens. That’s based on financial modeling that “continues to reflect Walgreens' low earnings quality, low visibility, and our expectation of potential negative revisions,” writes analyst George Hill. “It also reflects the structurally challenging position of the retail pharmacy space and the high expectations in the health segment. Walgreens is yet to show more evidence of stability in their core business and evidence of the turnaround at Village.”