• by Sarah Mahoney  @mahoney_sarah, March 29, 2024

The last few years have been a roller-coaster ride for drug retailers, with Walgreens' latest financial results showcasing just how complex the healthcare universe can be.

Walgreens revenues for the second quarter met expectations, rising to $37.1 billion, up 6.3% from $34.86 billion in the same period in 2022. But it posted a $12.32 billion net loss, compared to net earnings of $544 million a year ago.

The red ink stems from the impairment of goodwill in the purchase of VillageMD, a chain of nearly 700 health clinics, in 2021. In a conference call webcast for investors, the company says the write-off is due to reduced financial expectations for VillageMD, which is experiencing slower patient growth than anticipated. Walgreens is also shutting down 160 clinics in non-core markets.

The Deerfield, Illinois-based company is in the midst of a massive turnaround effort. It is trying to integrate prescription drug sales, retail, and healthcare into a cohesive corporate strategy.

As part of the shakeup, the company recently appointed Tim Wentworth, a Cigna executive, as chief executive officer to replace Rosalind Brewer, who joined from Starbucks in 2021. At her appointment, the company vowed to become more consumer-centric. Wentworth promised to focus on cost-cutting and efficiencies and says he is confident the company can deliver $1 billion in savings this year.

Walgreens is also paring back earlier projections, citing ongoing challenges in discretionary consumer spending.

Sales in the U.S. pharmacy segment climbed 4.7% to $28.9 billion. That includes an 8.7% increase in pharmacy sales and a 4.5% drop in front-of-store sales. Walgreens says this is due to fewer people suffering from colds, coughs, and flu this season and general consumer pullbacks.

Despite the staggering write-off, the company’s healthcare business's underlying performance seems solid, with the first quarter of positive earnings at $17 million.

Sales reached $2.2 billion, up 33%, aided by the acquisition of Summit Health. VillageMD’s sales gained 20% to $1.6 billion. And revenues at Shield increased 13%.

While the steep impairment charges and diminished forecast seem gloomy, they’re masking genuine improvements, writes Keonhee Kim, an analyst who follows Walgreens for Morningstar.

“All three segments posted solid sales growth despite a challenging environment,” he says. “The overall prescription trend remains resilient, and drug inflation continues to drive top-line growth.”

And while the write-off and clinic closures look like bad news, “we see this as yet another piece of new leadership’s initiative to focus on driving durable growth in the right cost structure.”