Walgreens Reports Narrower Than Expected Loss Ahead Of Takeover

Walgreens Boots Alliance Thursday reported a narrower-than-expected $175 million loss in its third quarter as the struggling pharmacy chain nears the end of its long run as a publicly traded company.

Walgreens fiscal third quarter results for the period ending May 31 of this year come as the company works on completing its sale to the investment firm Sycamore Partners for more than $10 billion. That deal, announced in early March, faces a special meeting of shareholders on July 11 to vote on whether to approve the sale.

Though sales rose 7% to $39 billion in its third quarter, the company lost $175 million, or 20 cents a share, which was a decrease of $519 million compared to net earnings of $344 million, or 40 cents a share, in the year-ago period thanks largely to “prior year after-tax gains related to fair value adjustments on variable prepaid forward derivatives and a partial sale of the company’s equity method investment in Cencora, and higher tax expense in the current quarter.” Cencora is the large drug distributor that Walgreens owns a minority stake in and has been gradually selling.

The Sycamore deal, which pays $11.45 per share — 29% above the December stock price — comes after years of Walgreens’ pharmacy closings and plummeting stock in part due to a disastrous rollout of clinics attached to stores.

On Thursday, Walgreens chief executive officer Tim Wentworth said third quarter results “reflect continued improvement in our U.S. Healthcare segment and benefits from our cost savings initiatives, while we continued to see weakness in our U.S. front-end sales.”

Walgreens said U.S. retail pharmacy segment sales rose nearly 8% to $30.7 billion compared to the year-ago quarter. Within that business, however, retail sales decreased 5% and that spilled onto adjusted operating income, which decreased 30% to $350 million from $501 million in the year-ago quarter.

“We remain focused on our turnaround plan, which will require time, disciplined focus and a balanced approach to manage future cash needs with investments necessary to navigate an evolving pharmacy and retail environment,” Wentworth said.

Sycamore, a private equity firm specializing in consumer, distribution and retail-related investments, also agreed to “one non-transferable right” to receive up to $3 in cash per Walgreens Boots Alliance share “from the future monetization of WBA’s debt and equity interests in VillageMD, which includes the Village Medical, Summit Health and CityMD businesses,” the companies said of Walgreens’ primary care businesses. The total value of the deal, including the $10 billion in equity value, is more than $23 billion when debt and other items are included, the companies said.

Walgreens third quarter results were much improved over its second quarter when the company in March reported a $2.8 billion loss thanks to a large impairment charge related to its struggling doctor-staffed clinic investment in VillageMD.

The Sycamore deal comes after Walgreens, which had a market value of more than $100 billion a decade ago, undertook the failed VillageMD in-store clinic rollout that led it to close hundreds of stores to reduce debt and stem financial losses.

Under former chief executive Roz Brewer, Walgreens spent billions of dollars investing in and operating physician-staffed clinic operator VillageMD.

Walgreens invested more than $6 billion in VillageMD under Brewer to take a controlling stake, but the company has already scaled back dramatically on the expansion of doctor practices and clinics the company opened. In 2020, Walgreens said it planned to open 500 to 700 “Village Medical at Walgreens” physician-led primary care clinics in more than 30 U.S. markets over five years, with the “intent to build hundreds more thereafter.”

For the nine-month period ended May 31, Walgreens lost more than $3.2 billion, or $3.81 per share. That compares with a loss of $5.6 billion, or $6.53 in the year-ago period.