Walgreens’ kicks off FY 2025 with a wider net loss of $265M; shares rise 25% as closures, sales, and cost-cutting continue

January 14, 2025 | by

Walgreens kicked off their FY 2025 on a sad trombone note–yet Mr. Market liked the music. In one of those contradictions that only make sense to Wall Street, Walgreens’s Q1 2025 earnings report, ending 30 Nov 2024 that reported last Friday, was dismal by any reading–but seemed hopeful to market makers who lifted the shares by over 25% as of midday 14 January. 

US retail pharmacy sales and operating losses were the main drags on WBA’s results.

First, the highlights from the earnings release:

  • Operating loss was $245 million, versus $39 million in Q1 2024. The increased loss was due to lower US retail sales and lapping prior year sale-leaseback gains. Another driver was the US Retail Pharmacy Footprint Optimization Program, unexplained in the release.
  • Net loss was $265 million, versus $67 million in Q1 2024, driven by operating losses.
  • It was a dismal quarter for US Pharmacy, which includes the retail stores, despite gains in pharmacy sales of 10.4% due to drug inflation. Retail sales (the front end of the store) decreased 6.2%.
  • A bright spot was US Healthcare, which includes VillageMD, CareCentrix, and Shields, had a smaller operating loss of $325 million, versus same quarter in FY 2024’s $436 million. VillageMD sales increased 9%, CareCentrix increased 16% and Shields increased 30%.
  • Another bright spot was Boots UK’s performance. Their ‘comparable’ pharmacy sales increased 10.9% versus prior year, retail sales  8.1 percent% and grew across all categories. Boots.com sales–22% of total retail sales–were up 30% boosted by Black Friday.

So why did Mr. Market kvell over this and immediately boost the same shares that fell 63% in 2024? Mostly from the earnings call with CEO Tim Wentworth and other C-levels:

  • Results beat the Street estimates (LSEG survey):
    • Earnings per share: 51 cents adjusted vs. 37 cents expected
    • Revenue: $39.46 billion vs. $37.36 billion expected
  • Guidance for FY 2025 estimates adjusted earnings per share at $1.40 to $1.80 per share with revenue in the $150 billion range.
  • CEO Tim Wentworth confirmed that retail locations will continue to close and will accelerate. 70 were closed in Q1 2025.
    • Their goal is to close 1,200 locations from 2024 through 2026, with 450 to 500 underperforming locations to shutter in 2025. Walgreens currently has around 8,500 retail locations.
  • The sale of VillageMD is underway but no potential acquirers were mentioned on the call.  Separately for Summit Health and CityMD, Walgreens is considering “best options” such as sale or restructuring. These units were snapped up by VillageMD in January 2023.
  • They are working to turn around retail sales which are declining due to consumers restricting spending due to inflation and the value in using online retailers.
    • One measure is around labor scheduling being redesigned to improve the in-store experience. Walgreens is launching a new scheduling model in about 200 locations based on store demand patterns.
  • In pharmacy, they plan to roll out digital and virtual check-in for patients plus micro-fulfillment centers for prescription processing.

Interestingly, Walgreens in the US is not promoting online sales–unlike Boots UK which has done well with it.

There was no comment on the reported consideration of sale to a private equity (PE) firm such as Sycamore Partners [TTA 10 Dec 2024, 8 January], which would remove it from the NYSE.

Street analysts are boosting the stock now, but state that they need to see a few more quarters of stable performance to feel more confident about WBA’s future. Whether that will happen and that the US retail/pharmacy picture improves is to be determined. HIStalk, CNBC, FierceHealthcare, Healthcare Dive

Walgreens gives up on VillageMD, will sell to reduce stake below majority, closing underperforming stores, revising profit outlook– and in abandoning Boots sale, managing director James quits

July 2, 2024 | by

Q3 results are in for Walgreens Boots Alliance (WBA) and it was largely a bummer, especially if you work for VillageMD. Their financials have taken a hit from crashing US consumer retail spending and the softening pharmacy business. Adjusted earnings per share (EPS) were $0.63, down 36.6% on a constant currency basis compared to Q3 last year. The full year guidance was lowered from Q2’s outlook of $3.20 to $3.35 EPS to $2.80 to $2.95, again citing US trends. Q3 sales were up 2.6% to $36.4 billion, up 2.5% versus last year. Release

Industry estimates are that fully one-quarter of Walgreens’ 8,700 US stores are being reviewed for performance and closure, based on industry estimates and Tim Wentworth’s remarks on the investor call last week. Healthcare Dive, FierceHealthcare

Mr. Market didn’t like the WBA news at all, dropping the share price from the call last week to today, closing at $11.58, its lowest level in years. Nine years ago, it traded just over $95 per share. Its consistently steady price and healthy dividend save the last couple of years gave it a broker nickname of a ‘widows and orphans’ stock.

The bad news for VillageMD is that it’s for sale. Walgreens plans to lower its ownership below a majority holding and not to grow that line of business, instead focusing on retail pharmacy. Lowering its ownership stake means it has to find a buyer or buyers for at least 14 points of its 63% share. And it’s been a money pit. It not only upped its share from about 30% to 63% in 2021 for $5.3 billion but subsidized the acquisition of Summit Health/CityMD by VillageMD in November 2022 for $8.9 billion ($3.5 billion from WBA). The rough calculation of $10 billion [TTA 28 Mar] spent under CEO Roz Brewer’s watch does make it a bit easier for CEO Tim Wentworth to slash away. 140 locations were closed by March with a total now estimated at 160.  

But where to find a buyer/investor? It won’t be Cigna. Last May, Cigna wrote off $1.8 billion of its 2022 $2.2 billion investment which gave it a ‘in the teens’ share [TTA 2 May]. WBA wrote it down as well; last quarter, a $12.4 billion non-cash impairment charge related to VillageMD goodwill netted a $5.8 billion writedown. It’s no moneymaker though its revenue this quarter grew 7%. An industry analyst estimated VillageMD’s 2023 losses at $800 million last April. Primary care is no longer a hot investment. Even mighty CVS is looking for a private equity investor in Oak Street Health, which implies that CVS doesn’t want to put more than the bare minimum into expanding OSH’s clinics [TTA 29 May].

This Editor’s own interesting take on an option. VillageMD’s new COO/president is a Centene ‘retiree’, Jim Miller. Previously, he had the same positions for two years at Magellan Health. He was there when it was acquired by Centene in 2022 and stayed on till retiring in April. Magellan’s holdings have largely been sold off since activist investor Politan stepped in [TTA 10 Apr]. Could it be that Miller may find investors to buy or spin it off and go private?

Shields Health not for sale and neither is Boots, which didn’t make the latter’s managing director happy. On the investor call, Wentworth also confirmed that specialty pharma operation Shields Health Solutions, bandied about as a sale candidate, will be retained. It grew 24% in Q3 versus year prior. Boots pharmacies in the UK will remain off the WBA selling block in another about-face. Right after last week’s investor call, Boots’ managing director Sebastian James announced his departure, effective in November (!) reportedly for a European eye surgery business. James had been with Boots as MD since 2018 and oversaw 13 consecutive quarters of market share growth including this one, with a 6% rise in UK comparable retail sales. It’s hard not to speculate that either James had lined up a buyer or he tired of the push me-pull you from management. Another factor that doesn’t inspire confidence. Morningstar UK

Wentworth continues to have a rough ride with some speculation as to why WBA continues to dig itself into a hole and when it will turn around.

Facing Future: Walgreens CEO moves company into strategic review–will he get WBA board alignment?

March 5, 2024 | by

Walgreens’ CEO Wentworth positions for turnaround. “This is not a 12-month turnaround story” said Mr. Wentworth at the TD Cowen healthcare investor conference. To this Editor, the public honesty and lack of cant (a/k/a “PR Speak”) was refreshing. His unobvious caveat though was aligning the board around what he and the new executive team–very few if any carryovers from the prior regime–see as the direction of the company and asset management.

The WBA board is led by executive chairman Stefano Pessina, who has a vested interest in a turnaround. He is the lead individual shareholder of WBA with apparently 10% of shares with other insiders (including the COO of WBA International, Ornella Barra, spouse of Mr. Pessina) having about 17%. Large institutional investors (Vanguard, State Street, etc.) have over 60% of the company. The share price has fallen about 40% in the past year (from early March 2023) and 55% from this time in 2022. (Derived from WBA and Yahoo Finance)

Example: This Editor has estimated from public information that Walgreens sank north of $10 billion into VillageMD, from initial and then controlling interest, then funding the buy of Summit Health/CityMD. This is a huge and recent investment that is going sideways in a span of less than three years. It does take some nerve to walk it back. TTA 22 Feb

Other key points Mr. Wentworth made, according to the most complete report in Crain’s Chicago Business, was that this was not a prelude to some massive unveiling of a New Walgreens, that it would be a ‘starting gun’ for the work to be done, and that investors would be updated through the process. The review will include:

  • Evaluating its 8,000+ location footprint based on current and projected population and type of usage
  • US Healthcare assets including the already shrinking VillageMD [TTA 29 Feb], home care benefit management services primarily for payers CareCentrix, and specialty pharmacy Shields Health Solutions.
  • Shields is apparently no longer up for sale per earlier reports but Boots now may be
  • Smaller assets around clinical trials and pharmacy fulfillment centers

The next earnings call is 28 March, when undoubtedly more will be revealed.

FierceHealthcare caught up to this as well.

Editor’s POV on ‘musts to avoid’: Walgreens’ chief medical officer, Dr. Sashi Moodley, was interviewed during ViVE24 by Mobihealthnews, It is only remarkable in how he sidestepped direct questions beyond the first two lengthy ones on a virtual care initiative, generating a fog of non-answers around VillageMD closures and corporate strategy that became peasoup thick by the last question. (Kudos to Jessica Haden for not going wobbly.) The dubious wisdom of placing a C-level in front of the press at a ‘hard and tough news’ time, one whose expertise is clinical in nature, most comfortable in speaking to that and not corporate strategy, plus evidently has a hard time editing/limiting responses, should be rethought. 

Midweek updates: Walgreens may sell Shields Health after 2 years; Ventric Health’s home cardiac RPM; Singapore military medical corps upgrades PACES 3 EMR

January 25, 2024 | by

Walgreens reportedly looking to sell Shields Health Solutions, working with advisers on a valuation to raise cash. That valuation may bring $4 billion in a sale. Shields provides specialty pharmacy services and is part of its US Healthcare division. Criticism of the possible sale breaking in Bloomberg 23 January was hardly muted. TD Cowen analysts cited in Healthcare Dive called it “a strange move” to sell what could be Walgreens’ highest margin business with a knock-on effect of slowing a return to profitability. They even proposed that a sale of Boots in the UK might make more sense. A Bloomberg analyst called it “a pointed reversal of the prior CEO’s strategy to diversify” but also stated that “the strategic rationale for owning it remains strong”. It is perhaps the most salable of US Healthcare’s assets, with excellent growth of 27% in its last quarter. WBA bought a minority stake in Shields  in 2019, spent $970 million to take majority control in 2021, and bought out the last 30% for $1.37 billion in 2022.

The impression left by these articles and in FierceHealthcare was that WBA is a “troubled drug-store chain in turnaround mode” (Bloomberg). That isn’t a good look.

Heart failure is a major disease, with 6.5 million in the US diagnosed and joined by 550,000 every year. Ventric Health has a newly FDA-cleared non-invasive cardiac diagnostic system for remote patient monitoring (RPM) that can be used in the home as well as clinical settings. A trained clinician can use Ventric’s Vivio system to perform an evaluation in the home or a clinic that could only previously be done in the hospital. An EKG patch and arm cuff are placed on the patient, connected to a tablet with the Vivio app and its advanced algorithms via Bluetooth, and in under five minutes–two minutes for the data collection and about a minute for the analysis, can evaluate patient heart failure. The portability of the system eliminates a lot of care barriers to cardiovascular health by being more accessible to clinicians and patients in non-hospital settings, reduces time wasted on initial diagnosis, improves support of diagnosed patients, and promotes better outcomes. Healthcare IT News

The Singapore Armed Forces (SAF) Medical Corps upgraded its EMR for the first time in a decade. The SAF’s Patient Care Enhancement System 3 (PACES 3) runs both the Sunrise EMR system and the newly implemented Altera Opal by Altera Digital Health. This is Sunrise’s first upgrade in Asia-Pacific. Soldiers can now access information on their medical history, manage and book their medical appointments. Also upgraded: document management, clinical and financial applications, including enhanced workflows, improved system performance, enabled compliance with regulatory obligations, and improved overall usability. It also connects securely to Singapore’s National Electronic Health Record system and other local health IT infrastructures via internet. The EMR is the responsibility of the Ministry of Defence (MINDEF) of Singapore. Healthcare IT News