TLDR
- WBA reported Q2 sales increase of 4.1% to $38.6 billion, beating analyst expectations
- Q2 adjusted EPS of $0.63 exceeded forecasts but declined from $1.20 in the year-ago quarter
- The company recorded a $3.30 loss per share due to $4.2 billion in non-cash impairment charges
- Pending acquisition by Sycamore Partners has led WBA to withdraw its fiscal 2025 guidance
- U.S. Healthcare segment achieved profitability with $117 million adjusted operating income versus prior year loss
Walgreens Boots Alliance reported its fiscal 2025 second quarter results on April 8, showing a company in transition. The pharmacy retailer is navigating challenges while working through the early stages of a turnaround plan.
Sales for the quarter increased 4.1% year-over-year to $38.6 billion. This represents a 4.7% increase on a constant currency basis. The results exceeded Wall Street’s revenue expectations of $37.76 billion.
The company posted a quarterly loss per share of $3.30. This was an improvement compared to the $6.85 loss per share in the same quarter last year.
Results included $4.2 billion in non-cash impairment charges related to goodwill and assets. These were primarily at U.S. Retail Pharmacy and VillageMD.
On an adjusted basis, earnings per share came in at $0.63. This beat analyst estimates of $0.52 but was down from $1.20 in the year-ago quarter.
Segment Performance Shows Mixed Results
The U.S. Retail Pharmacy segment saw sales increase 5.3% to $30.4 billion. Comparable sales grew 8.2% from the year-ago quarter.
Pharmacy sales were particularly strong, increasing 8.9% with comparable pharmacy sales up 12.2%. This growth was driven by higher branded drug inflation and prescription volume.
However, retail sales decreased 5.5%. Comparable retail sales fell 2.8% due to lower sales in discretionary categories including beauty, seasonal, and general merchandise.
The segment’s adjusted operating income decreased 35.2% to $487 million from $752 million. This decline reflected lower retail sales and the absence of sale-leaseback gains that had boosted prior year results.
The International segment reported a modest 0.6% sales increase to $6.1 billion. On a constant currency basis, sales grew 4.1%.
Boots UK delivered solid performance with comparable retail sales increasing 5.1% on a constant currency basis. Digital sales were particularly strong, with Boots.com growing 19.5%.
Healthcare Segment Shows Improvement
Perhaps the brightest spot in the results was the U.S. Healthcare segment. Despite a slight sales decrease of $23 million, the segment achieved adjusted operating income of $117 million, compared to a $34 million loss in the prior year quarter.
Adjusted EBITDA reached $158 million, improving by $140 million versus the prior year. This improvement reflected better performance at VillageMD and growth at Shields.
VillageMD remained a trouble spot. The company recorded a $3.0 billion non-cash impairment charge related to VillageMD goodwill and other long-lived assets.
This impairment was driven by market indications of value received during the quarter as part of the ongoing sale process. It also reflected updated management forecasts that were lower than previous projections.
CEO Tim Wentworth acknowledged the challenges facing the company. “Second quarter results reflect disciplined cost management and improvement in U.S. Healthcare, which were partially offset by weaker front-end results in U.S. Retail Pharmacy,” he said.
He added that “significant legal settlements resulted in continued negative free cash flow.” The company reported that operating cash flow was negatively impacted by $969 million of legal payments primarily related to Everly and opioid-related settlements.
Pending Acquisition Changes Outlook
The most significant development for WBA investors involves the pending acquisition by Sycamore Partners. On March 6, 2025, WBA entered into a definitive agreement to be acquired by entities affiliated with the private equity firm.
Due to this pending transaction, the company withdrew its fiscal 2025 guidance. The merger is expected to close in the fourth quarter of calendar year 2025, pending shareholder and regulatory approvals.
Upon completion of the transaction, WBA will no longer be listed on the Nasdaq Stock Market and will become a private company.
Free cash flow remained negative at $418 million, though this represented a $192 million improvement compared with the year-ago quarter. The improvement was primarily driven by better working capital management and a decrease in capital expenditures.
The stock traded up 1.1% to $10.85 immediately after reporting, suggesting investors saw some positives in the mixed results.
WBA continues to face challenges in its retail business while making progress in its healthcare initiatives. The pending acquisition by Sycamore Partners may provide the company with the flexibility needed to complete its turnaround away from public market scrutiny.
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