Walgreens Boots Alliance lost nearly $6 billion in its second quarter as the company grapples with the loss in value of its investment in doctor-staffed clinic operator VillageMD.
Walgreens, which invested more than $6 billion in VillageMD under former chief executive Roz Brewer to take a controlling stake in the operator of doctor practices, is scaling back on the expansion of the clinics the company opened attached to Walgreens.
Tim Wentworth, who took over as Walgreens chief executive last October, has described VillageMD’s expansion effort as needing to go on “a diet.” Wentworth has said Walgreens and partner VillageMD have slowed the number clinic openings in part because the operators haven’t been able to fill their so-called “patient panels,” which are a certain number of individual patients under the care of a specific provider.
Thus, VillageMD, which operates standalone doctor practices and physician-staffed clinics attached to Walgreens, is shuttering about 160 clinics, a company spokeswoman said. As of March 26, VillageMD said they have exited 140 locations and has “exited or already notified patients that it is exiting Florida, Indiana, Chicago, Boston, Rhode Island and Las Vegas,” a VillageMD spokeswoman said Wednesday.
In Walgreens second quarter ended February 29, 2024, the retail pharmacy giant said Thursday its financial results “included a $5.8 billion after-tax non-cash impairment charge related to VillageMD goodwill.” For the quarter, Walgreens reported a net loss in the second quarter of $5.9 billion, or a loss of $6.85 per share, compared to net income of $703 million, or 81 cents per share, in the year-ago quarter.
Still, Walgreens said second quarter sales increased 6.3 percent to $37.1 billion compared to the year-ago period thanks to growth in both retail pharmacy and Walgreens U.S. healthcare businesses led by Shields Health Solutions, a fast-growing specialty pharmacy business.
“We’re encouraged by our first quarter of U.S. Healthcare positive adjusted EBITDA and continued topline growth alongside another quarter of strong execution in pharmacy, as we look to re-energize and evolve its impact both at Walgreens and at large,” Wentworth said in a statement issued Thursday along with Walgreens quarterly earnings report. “As we continue to operate in a challenging retail environment, we are taking actions to focus on customer engagement and value.”
Despite the issues at VillageMD, the company still operates about 190 clinics that are Village Medicals or Village Medical at Walgreens, and they helped Walgreens U.S. healthcare segment grow sales by 33.2% in the second quarter to $2.2 billion. That growth was attributed by Walgreens to VillageMD’s $8.9 billion acquisition last year of Summit Health, which operates primary care, specialty and urgent care in more than 20 U.S. markets.
“On a pro forma basis, the (healthcare) segment’s businesses grew sales at a combined rate of 14 percent in the quarter, led by VillageMD and Shields,” Walgreens said in its earnings report. “VillageMD grew 20 percent on a pro forma basis, reflecting same clinic growth and additional full-risk lives under management. Shields grew 13 percent, driven by recent contract wins and further expansion of existing partnerships.”
Walgreens U.S. healthcare segment reported an operating loss of $13.1 billion, “due to the non-cash impairment charge related to VillageMD goodwill,” the company said.
Meanwhile, Walgreens U.S. retail pharmacy segment reported a 4.7 percent increase in sales to $28.9 billion. The pharmacy business benefitted from “higher branded drug inflation and strong execution in pharmacy services,” the company said in its earnings report.
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