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.
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.