Walgreens Boots Alliance is almost halfway through its plan to close 60 VillageMD locations in fiscal 2024 as it works through its cost-cutting strategy and prioritizes density in markets with attractive growth opportunities, CEO Tim Wentworth said during the company's fiscal first quarter earnings call on Jan. 4.
A significant portion of Walgreens' planned $1 billion in cost reductions will come from VillageMD, which aims to exit about five markets and close around 60 clinics this year. The exits may come in multiple forms, including sales and hybrid equity arrangements.
In the fiscal first quarter, which ended Nov. 30, Walgreens' U.S. healthcare segment reported $1.9 billion in sales, reflecting the acquisition of Summit Health by VillageMD, and growth in all businesses compared to the same period last year. Operating loss was $436 million, flat versus the year-ago quarter.
The retail pharmacy segment saw sales increase 6.4% year over year in the quarter to $28.9 billion. Adjusted operating income dropped 37.2% to $694 million compared, reflecting a weaker flu and respiratory season, lower retail sales and continued pharmacy reimbursement pressure net of procurement savings, which was partly offset by execution in pharmacy services and cost savings.
Overall, Walgreens' first-quarter sales increased 10% year over year to $36.7 billion due to sales growth in the retail pharmacy and international segments, as well as sales contributions from the U.S. healthcare segment. Operating loss was $39 million compared to a $6.2 billion loss in the prior-year quarter. Walgreens said the improvement in operating loss is due to lapping the $6.5 billion pre-tax charge for opioid-related claims and litigation recorded in the year-ago quarter. As such, adjusted operating income was $687 million.
"WBA delivered fiscal first quarter results in line with overall expectations, reflecting disciplined execution in a challenging consumer backdrop," Mr. Wentworth said. "We are evaluating all strategic options to drive sustainable long-term shareholder value, focusing on swift actions to right-size costs and increase cash flow, with a balanced approach to capital allocation priorities."
Walgreens also cut its quarterly dividend payment to 25 cents per share, a 48% reduction from the previous quarter.
"Since the start of my tenure with WBA, we have been evaluating our options across our strategies and operations, including those related to our capital allocation," Mr. Wentworth said. "We have made the difficult decision to reduce our quarterly dividend payment to 25 cents per share, to strengthen our long-term balance sheet and cash position. This action reinforces our goal of increasing cash flow, while freeing up capital to invest in sustainable growth initiatives in our pharmacy and healthcare businesses, which we believe will ultimately improve shareholder value."
Last month, Moody's Investor Service cut Walgreens's credit rating to junk as the pharmacy store chain aims to expand its retail care offerings. Walgreens said it was disappointed in the decision and the "limited timeframe given to demonstrate the results of our deleveraging efforts and planned actions to improve underlying business performance."