Walgreens Boots Alliance Navigates Challenges, Focuses on Turnaround Efforts

Walgreens Boots Alliance (WBA), the integrated healthcare, pharmacy and retail leader, has faced a number of headwinds in recent quarters as it works to execute a strategic turnaround. The company’s financial results for the second quarter of fiscal year 2025 reflect both progress and ongoing challenges.

Financial Performance Overview

For the three months ended February 28, 2025, WBA reported a net loss of $2.9 billion, or $3.30 per share, compared to a net loss of $5.9 billion, or $6.85 per share, in the year-ago quarter. The decrease in net loss was primarily driven by lower non-cash impairment charges, partially offset by lower retail sales and higher legal settlements.

Adjusted net earnings, a non-GAAP measure that excludes certain one-time items, were $543 million, or $0.63 per share, down from $1.0 billion, or $1.20 per share, in the prior year period. The decrease in adjusted earnings reflects lower retail sales, lower equity income from the company’s Cencora investment, and the absence of sale-leaseback gains recorded in the year-ago quarter.

Operating loss for the quarter was $5.6 billion, compared to an operating loss of $13.2 billion in the same period last year. The improvement was driven by the absence of the large goodwill impairment charge related to the VillageMD business that was recorded in the prior year, partially offset by a $3.0 billion impairment charge in the current quarter.

Segment Performance

The company operates through three reportable segments: U.S. Retail Pharmacy, International, and U.S. Healthcare.

U.S. Retail Pharmacy The U.S. Retail Pharmacy segment saw sales increase 5.3% to $30.4 billion, driven by 8.9% growth in pharmacy sales, partially offset by a 5.5% decline in retail sales. Comparable pharmacy sales increased 12.2%, reflecting higher branded drug inflation and prescription volumes. However, comparable retail sales declined 2.8%, impacted by weaker consumer trends and a continued shift to e-commerce.

Adjusted operating income for the segment decreased 35.2% to $487 million, as lower retail sales and equity income from Cencora more than offset cost savings initiatives.

International The International segment reported a 0.6% increase in sales to $6.1 billion. On a constant currency basis, sales grew 4.1%, with the Germany wholesale business up 7.2% and Boots UK sales rising 1.6%. Pharmacy sales declined 6.7%, but retail sales increased 1.1%.

Adjusted operating income for the International segment decreased 4.7% to $234 million, as cost inflation and technology investments offset strong retail performance in Boots UK and market growth in Germany.

U.S. Healthcare The U.S. Healthcare segment, which includes the company’s VillageMD, Shields, and CareCentrix businesses, saw sales decrease 1.1% to $2.2 billion. VillageMD sales declined due to lower fee-for-service and risk-based revenue, partially offset by growth at Shields and CareCentrix.

The segment reported an operating loss of $3.3 billion, which included a $3.0 billion non-cash impairment charge related to VillageMD goodwill and other long-lived assets. Adjusted operating income for the segment improved to $117 million, up from a loss of $34 million in the prior year period, driven by higher contributions from VillageMD’s risk-based business and growth at Shields.

Strategic Initiatives

In fiscal 2024, WBA initiated a strategic and operational review of its business, with a focus on strengthening its core retail and specialty pharmacy operations, leveraging current assets through capital-efficient businesses, and expanding partnerships.

Key actions taken in fiscal 2025 include:

• Advancing the Footprint Optimization Program to close 900-1,000 underperforming U.S. Retail Pharmacy stores, which is expected to deliver cash flow benefits exceeding closure costs.
• Stabilizing pharmacy margins by contracting with partners that incorporate levers to lessen reimbursement risk.
• Re-evaluating the U.S. Retail Pharmacy sales strategy, including adding new owned brand products and other merchandising initiatives.
• Continuing to monetize non-core assets, such as the sale of the company’s investment in BrightSpring Health Services and accelerating the settlement of certain variable prepaid forward (VPF) transactions.

The company is also evaluating options for its VillageMD business, including a potential sale of all or part of the operations, as VillageMD has substantial ongoing cash requirements.

Goodwill and Asset Impairments

During the quarter, WBA recognized a $3.0 billion non-cash impairment charge related to the VillageMD reporting unit, as well as $2.0 billion and $178 million in goodwill impairment charges for the U.S. Retail Pharmacy and CareCentrix reporting units, respectively. The company also recorded a $115 million impairment loss on indefinite-lived pharmacy license and trade name intangible assets in the Boots reporting unit within the International segment.

These impairment charges reflect the challenging operating environment and the company’s ongoing efforts to right-size its business and asset base.

Liquidity and Capital Resources

As of February 28, 2025, WBA had $1.2 billion in cash, cash equivalents and restricted cash, down from $3.2 billion at the end of fiscal 2024. The company continues to explore strategic monetization of non-core assets and investments to provide additional liquidity.

During the quarter, WBA early settled certain VPF derivative contracts, receiving $315 million from the sale of the remaining 1.3 million shares of Cencora common stock. The company also sold $254 million of its BrightSpring Health Services investment.

Total debt stood at $8.0 billion as of February 28, 2025, with $1.4 billion classified as current. The company has $5.8 billion in aggregate borrowing capacity under committed revolving credit facilities, which it is exploring opportunities to extend or refinance ahead of upcoming maturities in fiscal 2026 and 2027.

WBA also announced that its Board of Directors has suspended the company’s quarterly cash dividend to shareholders, in order to strengthen the balance sheet, reduce debt, and improve free cash flow as part of its turnaround efforts.

Outlook and Challenges

WBA continues to face a number of headwinds that have impacted its financial performance and cash flow, including:

• Opioid-related claims and litigation settlements, which have resulted in a $6.4 billion liability on the company’s balance sheet.
• Adverse global macroeconomic conditions, such as high inflation, interest rates, and supply chain disruptions, which have weighed on consumer spending and the company’s retail operations.
• Ongoing investments in the VillageMD business, which has substantial cash requirements.
• Competitive pressures and channel shifts in the retail pharmacy industry.

Despite these challenges, the company remains focused on executing its strategic initiatives to stabilize the core business, improve profitability, and position WBA for long-term sustainable growth. Key priorities include optimizing the retail footprint, strengthening pharmacy margins, enhancing the retail sales strategy, and selectively investing in the higher-growth healthcare services segment.

While the road ahead may be bumpy, WBA’s management team is working to transform the business and restore the company’s financial health and competitive position in the evolving healthcare and retail pharmacy landscape.