Dive Brief:
Walgreens’ first quarter earnings were notably better than Wall Street feared, though the retail pharmacy operator continues to suffer heavy losses as it works to right the ship.
On Friday, Walgreens posted financial results that beat analyst expectations with revenue of $39.5 billion, up 7.5% year over year. Still, Walgreens reported a net loss of $265 million, larger than its $67 million loss same time last year, mainly due to costs stemming from ongoing store closures and asset sales.
Walgreens’ market value has plummeting in recent years, leading the company to explore a private equity buyout, according to the Wall Street Journal. Executives didn’t address the speculation on a call with investors Friday morning, but said Walgreens made progress on its $1 billion cost-cutting initiative in the quarter, including a pending sale of beleaguered medical chain VillageMD and closures of 70 underperforming retail stores.
Dive Insight:
Walgreens operates one of the largest pharmacy chains in the U.S., with thousands of locations. That footprint gives the company access to a broad swath of consumers and handy leverage for negotiating pharmacy contracts with insurers.
However, it has also left Walgreens significantly exposed to headwinds in the retail pharmacy space, including shaky reimbursement for dispensing prescriptions, staffing challenges and fluctuations in consumer spending. At the same time, the the Deerfield, Ill.-based company is attempting to recover from an unsuccessful pivot to providing health services — all while on the hook for massive payouts for its role in the U.S. opioid crisis.
Investors haven’t been confident that Walgreens will be able to turn things around. Walgreens was one of the worst performing stocks in the S&P 500 in 2024, falling more than 63% over the year.
However, the retail pharmacy giant showed some early signs of progress in results posted Friday, which led Walgreens to reaffirm its profit outlook for 2025.
“All-in, despite what remains a challenging pharmacy backdrop (continued reimbursement pressure, broad weakness in retail demand), [Walgreens’] quarterly performance was better than expected,” Michael Cherny, an analyst with Leerink Partners, said in a note.
Still, “the number of moving parts in the broader [Walgreens] story remain numerous and unchanged,” he wrote.
Despite improving operations, Walgreens’ recovery will take time, CEO Tim Wentworth stressed during the call with investors.
Reasons for optimism include renegotiated contracts with payers and pharmacy benefit managers that give Walgreens’ pharmacies more stable reimbursement and the opportunity to be paid for more services besides dispensing drugs, Wentworth said.
The contracts for 2025 account for about one-third of Walgreens’ reimbursement agreements with payers. Many of them equalize payment for brand and generic drugs and create new payment categories for high-cost drugs, reversing “massively insufficient” payment in the past for pricey medications like GLP-1s, Wentworth said.
The CEO’s comments follow similar news from Walgreens competitor CVS Health earlier this week that it had transitioned commercial pharmacy contracts to a more reliable “cost plus” model.
“If you think about what they announced, it’s very similar. It’s a different way of I guess thinking about what we’ve been doing in our contracts,” Wentworth said.
Along with the 70 store closures in the first quarter, Walgreens plans to shutter another 450 through the remainder of 2025 to create a smaller but more profitable footprint, according to the CEO.
Walgreens has pledged to close 1,200 of its roughly 8,700 U.S. stores over the next three years to cut costs. That’s on top of the hundreds of stores Walgreens has shuttered in recent years.
Walgreens has also been divesting assets, including stakes in home infusion provider Option Care Health and drug distributor Cencora.
Walgreens announced last summer that it planned to sell some or all of its stake in VillageMD, which has been doggedly unprofitable despite steep investments in the business.
The company is forging ahead with a sale despite VillageMD’s recent growth — the medical chain’s sales increased 9% year over year in the quarter. Walgreens also continues to evaluate “the best options” for Summit and CityMD, other medical groups acquired in the past few years, according to Wentworth.
“To be clear, our ultimate intent to exit is unchanged,” Wentworth said. Walgreens plans to use proceeds from the sales to reduce debt.
Improved performance of VillageMD, along with at-home care provider CareCentrix and specialty pharmacy Shields Health Solutions, helped shrink the operating loss for Walgreens’ U.S. Healthcare division to $325 million. That’s compared to a loss of $436 million during the same time last year.
Walgreens stock rose more than 24% in Friday morning trade following the results.
