Company posts a net loss of $5.9 billion.

DEERFIELD, Ill. — Walgreens Boots Alliance Inc. topped analysts’ forecasts for second quarter revenue and adjusted earnings.

WBA posted adjusted earnings per share of $1.20, well above Wall Street’s predicted 82 cents. Sales of $37.05 billion exceeded the estimated $36.22 billion.

The company posted a net loss of $5.91 billion, or $6.85 per share, for the period ended February 29, largely attributable to a writedown of the value of VillageMD,  which has been shuttering financially strapped clinics.

Tim Wentworth

“We’re encouraged by our first quarter of U.S. Healthcare positive adjusted EBITDA and continued top line growth alongside another quarter of strong execution in pharmacy, as we look to reenergize and evolve its impact both at Walgreens and at large, said Chief Executive Officer Tim Wentworth. “As we continue to operate in a challenging retail environment, we are taking actions to focus on customer engagement and value.

“We remain confident in our goal of achieving $1 billion in cost savings this year. We are continuing to strategically review our portfolio over the next three months in an effort to ensure it drives growth and delivers value. Our team members, led by WBA’s new executive committee with a track record of operational excellence, are powering our progress as we map growth opportunities, aim to create long-term value across our businesses and execute the hard work to simplify and strengthen WBA.”

The company narrowed its fiscal 2024 adjusted EPS guidance to $3.20 to $3.35, reflecting a challenging retail environment in the U.S., early wind-down of its sale-leaseback program, and lower earnings due to Cencora share sales, offset by execution in pharmacy services and a lower adjusted effective tax rate.

It maintained its outlook for U.S. Healthcare adjusted EBITDA to be break even at the midpoint of the guidance range of ($50) million to $50 million.

Second quarter sales increased 6.3 percent from the year-ago quarter to $37.1 billion, an increase of 5.7 percent on a constant currency basis, reflecting sales growth across all segments.

Second quarter operating loss was $13.2 billion compared to an operating income of $197 million in the year-ago quarter. Operating loss in the quarter includes a $12.4 billion non-cash impairment charge related to VillageMD goodwill, which resulted in a $5.8 billion charge attributable to WBA, net of tax and non-controlling interest. Operating loss also reflects a $455 million non-cash impairment charge related to certain long-lived assets in the U.S. Retail Pharmacy segment. Adjusted operating income was $900 million, a decrease of 26.5 percent on a constant currency basis reflecting lower sale-leaseback gains and softer U.S. retail performance, partly offset by improved profitability in the U.S. Healthcare segment.

The $5.9 billion net loss compared to net earnings of $703 million in the year-ago quarter, reflecting non-cash impairment charges. Adjusted net earnings increased 3.5 percent to $1.0 billion, up 3.0 percent on a constant currency basis, as lower adjusted operating income was more than offset by the lower adjusted effective tax rate compared to the year-ago quarter due to the recognition of deferred tax assets in foreign jurisdictions.

The loss per share in the second quarter was $6.85 compared to earnings per share of $0.81 in the year-ago quarter. The adjusted EPS was up 3.4 percent, reflecting an increase of 2.8 percent on a constant currency basis.

Net cash used for operating activities was $637 million in the second quarter. Operating cash flow was negatively impacted by $615 million in payments related to legal matters, a $379 million Boots Pension Plan Annuity premium, and underlying seasonality. Year-over-year cash flow was negatively impacted by payments related to legal matters, phasing of working capital, and lower earnings. Free cash flow was negative $610 million, a $1.3 billion decrease compared with the year-ago quarter. Capital expenditures decreased by $146 million compared to the year-ago quarter.

The U.S. Retail Pharmacy segment had second quarter sales of $28.9 billion, an increase of 4.7 percent from the year-ago quarter. Comparable sales increased 4.8 percent from the year-ago quarter.

Pharmacy sales increased 8.2 percent compared to the year-ago quarter. Comparable pharmacy sales increased 8.7 percent in the quarter compared to the year-ago quarter, benefiting from higher branded drug inflation and strong execution in pharmacy services. Comparable prescriptions filled in the second quarter, adjusted to 30-day equivalents increased 2.7 percent from the year-ago quarter while comparable prescriptions excluding immunizations increased 2.9 percent. Total prescriptions filled in the quarter, including immunizations, adjusted to 30-day equivalents was 305.7 million, an increase of 2.6 percent versus the prior year quarter.

Front store sales decreased 4.5 percent and comparable retail sales decreased 4.3 percent compared with the year-ago quarter, reflecting a challenging retail environment, channel shift, and a weaker respiratory season, including a 170 basis point impact from lower seasonal and general merchandise sales, a 90 basis point direct impact from softer cold cough flu trends, and a 40 basis point impact from adverse January weather.

Adjusted operating income decreased 29.5 percent to $752 million compared to $1.1 billion in the year-ago quarter, reflecting lower retail sales, lower sale-leaseback gains, and higher shrink levels, partially offset by cost savings compared to the prior year quarter.

The International segment had second quarter sales of $6.0 billion, an increase of 6.6 percent from the year-ago quarter, including a favorable currency impact of 3.4 percent. Sales increased 3.2 percent on a constant currency basis, with the Germany wholesale business growing 5.3 percent and Boots UK sales growing 3.0 percent.

Boots UK comparable pharmacy sales increased 1.7 percent compared with the year-ago quarter. Boots UK comparable retail sales increased 5.9 percent compared to the year-ago quarter with growth across all categories, and increased total retail market share. Boots.com continued to perform strongly with sales growing 16.8, percent representing over 17 percent of Boots total retail sales.

The segment’s adjusted operating income decreased 30.3 percent to $245 million, a decrease of 32.4 percent on a constant currency basis compared with the year-ago quarter, entirely due to lapping real estate gains in the year-ago period. Underlying growth offset inflationary pressures.

The U.S. Healthcare segment had second quarter sales of $2.2 billion, an increase of 33.2 percent compared to the year-ago quarter, aided by the acquisition of Summit Health by VillageMD. On a pro forma basis, the segment’s businesses grew sales at a combined rate of 14 percent in the quarter, led by VillageMD and Shields. 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.

The segment’s operating loss was $13.1 billion, due to the non-cash impairment charge related to VillageMD goodwill. Adjusted operating loss, which excludes impairment charges, stock compensation expense, and amortization of acquired intangible assets, was $34 million compared to $159 million in the year-ago quarter.

Adjusted EBITDA of $17 million improved by $127 million versus the prior year quarter and represents the first quarter of positive adjusted EBITDA for the segment, driven by growth from VillageMD and Shields, and continued cost discipline.