Dive Brief:
- Walgreens expects its U.S. Healthcare division, which includes primary care chain VillageMD, specialty pharmacy company Shields Health Solutions and at-home care provider CareCentrix, to reach profitability in 2024, CEO Roz Brewer told investors on a Thursday call for Walgreens’ fourth-quarter results.
- Walgreens is also increasing its long-term sales outlook for the new division to between $11 billion and $12 billion in sales by 2025, with VillageMD being the largest contributor. In the 2022 fiscal year, U.S. Healthcare brought in $1.8 billion in sales.
- Despite a net loss in the fourth quarter, the Deerfield, Illinois-based pharmacy chain beat analyst expectations for both earnings and revenue.
Dive Insight:
In a release, Brewer said the coming fiscal year will be one of “accelerating core growth and rapidly scaling our U.S. Healthcare business.”
Walgreens has invested heavily in other areas of healthcare beyond its drugstore foundation, inking majority investments in VillageMD and Shields. Earlier this week, Walgreens announced it would shell out $392 million to acquire the remaining shares in CareCentrix, following the drugstore’s previous majority investment in the company for $330 million.
In the fourth quarter, U.S. Healthcare reported revenue of $622 million, up 34% in the quarter.
Shields grew its sales by 48% due to contract wins and expanding partnerships, while VillageMD’s sales grew 31%. The division posted a net loss of $9 million, as investments in VillageMD “more than offset” a profit from Shields, CFO John Kehoe told investors.
“2022 was a peak investment year,” Kehoe said. “VillageMD, Shields and CareCentrix will drive increasingly high contributions as the businesses mature.”
Walgreens plans to cut back on M&A in order to tie together existing assets, the CFO said. Brewer added that Walgreens will continue to explore deals to bolster its healthcare portfolio — especially its tech capabilities — and is not planning any additional investment in VillageMD at this time.
Walgreens has been building out its clinics with VillageMD, and reiterated Thursday that it is on track to open 200 locations next to its drugstores by the end of this year. At the end of the fourth quarter, Walgreens had 152 co-located clinics, bringing VillageMD’s total footprint to 342 locations.
It also has 70 stores with Health Corners, locations with registered nurses or pharmacists performing patient screenings and other services. Walgreens plans to have 100 Health Corners open by the end of 2022.
The company expects Walgreens Health, a care delivery business leveraging Walgreens’ disparate healthcare assets, to scale rapidly and focus on moving its covered lives into value-based and delegated risk arrangements, said John Driscoll, ex-CareCentrix CEO and new head of U.S Healthcare.
Walgreens Health currently covers more than 2 million lives and contracts with three health plan partners. “Over time, you will see us work more closely with those plans on shifting to risk,” Driscoll said. According to Defoe, Walgreens Health could take on delegated risk in the next six to 12 months.
COVID-19 vaccinations, a key driver of business for Walgreens’ sales and foot traffic during the pandemic, fell off significantly in the fourth quarter. The chain administered 2.9 million vaccinations, down from the 4.7 million administered in the third quarter.
Walgreens reported a net loss of $415 million in the quarter, compared to a profit of $627 million the year prior. The company chalked the loss up to a non-cash impairment charge on its Boots UK business and its cost management program.
Walgreens noted in its release that future business growth will face difficult year-over-year comparisons due to waning demand for COVID-19 vaccines and the strength of the U.S. dollar.
