Walgreens-VillageMD expansion lowers second-quarter operating income

The Walgreens Boots Alliance is betting big on its medical services after CEO Rosalind “Rose” Brewer called it a “significant quarter” for the segment. on the earnings call on Tuesday.

Walgreens U.S. health segment sales, which includes primary care provider VillageMD, specialty pharmacy Shields Health Solutions, and home care company CareCentrix, exceeded $1.6 billion in the second quarter ended Feb. 28. 2023 financial year of the pharmacy chain. The segment generated sales of US$527 million. for the second quarter a year ago.

However, investing in new services is not always cheap. The healthcare segment posted an adjusted operating loss of $159 million, including the impact of adding more than 130 VillageMD offices last year.

VillageMD is a key part of the pharmacy chain’s efforts to transform itself into a healthcare company. Walgreens invested $5.2 billion in 2021 to acquire a majority stake in VillageMD and plans to open 1,000 Village Medical primary care clinics co-located with Walgreens stores by 2027. Over the past year, the number of co-located clinics has doubled to 210. Half of the patients at these co-located clinics choose to get their prescriptions through Walgreens, Chief Financial Officer James Kehoe said during an earnings call.

VillageMD also completed its $8.9 billion acquisition of Summit Health-CityMD in January, expanding its presence in primary, acute and specialty care. Walgreens invested $3.5 billion in the deal.

“What we see is an opportunity to achieve greater cost and growth synergies through a set of multi-threat assets that we believe can be very effective as we concentrate market power with more service offerings in specific markets.” — John Driscoll, Walgreens U.S. Health Segment President, said Tuesday.

VillageMD generated more than $1.1 billion in sales for Walgreens in the second quarter, in addition to $125 million from Shields and nearly $400 million from CareCentrix.

Walgreens’ net income fell about 20% to $703 million in the second quarter, which management largely attributed to lower demand for COVID-19 tests and vaccines. Operating income fell 84% to $197 million. Sales revenue increased by 3.3% to $34.86 billion.