🤯 Picked by our AI, this stock rallied more than Nvidia this month, yielding 94% since MarchSee the stock

Walgreens takes $5.8 billion hit on VillageMD bet amid CEO focus on profit

Published 03/28/2024, 07:10 AM
Updated 03/28/2024, 11:06 AM
© Reuters. FILE PHOTO: Signage is seen outside of a Walgreens, owned by the Walgreens Boots Alliance, Inc., in Manhattan, New York City, U.S., November 26, 2021. REUTERS/Andrew Kelly/File Photo
WBA
-

By Leroy Leo and Puyaan Singh

(Reuters) -Walgreens Boots Alliance recorded a $5.8 billion impairment charge on its investment in clinic operator VillageMD on Thursday, hit by a cost-cutting drive to shut down unprofitable sites.

VillageMD, a core part of Walgreens' push to expand beyond its legacy pharmacy operations, plans to shut over 160 clinics to focus on sites present in densely populated areas, to increase the number of patients treated by a single doctor.

That, along with slower-than-expected growth of patients per doctor, led to a lower long-term forecast for the business, Walgreens executives said.

The company, which has invested over $6 billion over the last few years in VillageMD, has been looking to integrate clinics into its traditional drugstores.

That aligns with new CEO Tim Wentworth's focus on cutting costs to turn around a sagging share price and rebound from a post-pandemic hit to sales from lower demand for COVID tests and shots.

Wentworth said the company was now "reviewing every business through a longer-term lens" to focus on cost savings and strategic fit.

Walgreens reported a net loss of $5.9 billion for the quarter ended Feb. 29, mainly due to the impairment charge.

It also cut the higher end of its profit forecast for fiscal-year 2024, citing economic challenges in its retail operations.

Shares of the company, which have declined around 19% this year, were up 1% in volatile morning trading.

Jeff Jonas, portfolio manager at Gabelli Funds, said the company may not see a turnaround till maybe 2026, considering the financial pressures it faces. The fund owns a less than 1% stake in the company.

"The valuation is really low (and) the dividend is good. So we're getting paid to wait. And maybe the new CEO comes up with something even more creative," Jonas said.

© Reuters. FILE PHOTO: Signage is seen outside of a Walgreens, owned by the Walgreens Boots Alliance, Inc., in Manhattan, New York City, U.S., November 26, 2021. REUTERS/Andrew Kelly/File Photo

Excluding the charge and other one-time items, Walgreens reported earnings of $1.20 per share for the quarter, compared with analysts' average estimate of 82 cents per share, according to LSEG data.

It now expects an adjusted profit of $3.20 to $3.35 per share for its financial year ending Aug. 31, versus its previous range of $3.20 to $3.50 per share.

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.