Dive Brief:
- Walgreens beat analyst expectations for earnings and revenue, posting a topline of $38.6 billion, up 4% year over year, for its second quarter on Tuesday. The retail pharmacy giant shrank its losses to $2.9 billion, compared to a $5.9 billion loss during the same time last year.
- It’s one of the last financial reports for Walgreens before it transitions to a private company in a deal with private equity firm Sycamore Partners.
- Walgreens also withdrew its 2025 financial guidance, citing the pending take-private deal, which is expected to close by the end of the year.
Dive Insight:
In the second quarter, Walgreens’ retail pharmacy business boosted its financials amid higher branded drug inflation and prescription volume, which helped offset lower retail sales.
The profitability of its U.S. Healthcare segment also improved, though the corporation was hit by a $3 billion impairment charge related to the waning value of primary care subsidiary VillageMD — the latest in a string of such charges.
The market value of Walgreens — once a well-oiled drugstore colossus — has plummeted in recent years amid stagnating pharmacy reimbursement, fluctuating consumer spending and massive legal payouts to settle its role in the U.S. opioid crisis. The challenges led Walgreens to try a pivot to health services, including making hefty investments in medical chains, that have failed to churn out the profits that Walgreens expected.
Overall, Walgreens was one of the worst performing stocks in the S&P 500 last year.
Still, Walgreens posted some evidence earlier this year that its $1 billion cost-cutting initiative, which includes a pending sale of VillageMD and the closure of hundreds of stores, is starting to right the ship. However, this wasn’t happening quickly enough for investors, leading Walgreens to accept a roughly $10 billion take-private deal in March that’s slated to end its century-long run as a public company.
Some market watchers expect Sycamore, which has a history of carving up companies and slashing costs at divisions that remain, to break up Walgreens into smaller entities, especially in light of Walgreens’ significant debt.
If that’s the case, it’s unclear what will happen to Walgreens’ healthcare assets, including VillageMD and medical clinics Summit Health and CityMD, from its erstwhile push into primary care.
“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,” Walgreens CEO Tim Wentworth said in a statement on the company’s second quarter results.
