Walgreens Hits Healthcare Service Milestone – and Takes $5.8B Charge on Village Investment

March 28, 2024
The primary care clinic chain is close to wrapping up an initiative to close 160 locations, or nearly a quarter of its network.

One step forward, one step back?

The leaders of Walgreens Boots Alliance Inc. on March 28 said the company’s U.S. healthcare services unit grew its pro forma sales 14 percent in the three months ended Feb. 29 and produced its first-ever quarter of positive adjusted EBITDA.

But they also announced that they’ve booked a $5.8 billion charge against profits because the financial performance of VillageMD, a key pillar of that healthcare portfolio, is now expected to be worse than before and because its peer clinic operators are being valued at lower multiples.

Walgreens invested more than $6 billion in VillageMD via two deals in 2021 and 2022 and last year put to work another $3.5 billion when VillageMD acquired Summit Health-CityMD. The company now owns 53 percent of VillageMD, which rang up revenues of $1.6 billion in Walgreens’ second fiscal quarter—a 20 percent pro forma jump from the prior-year period.

The Village leadership team has been closing clusters of its clinics and making other cost cuts in recent months to focus on a smaller number of cities where it has dense store networks. Last fall, the venture set out to close 60 of its 680 locations but in January raised that number to 160. About 140 of those closures have been completed already.

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