Walgreens lost nearly $6 billion in its second quarter mainly due to a drop in value for the VillageMD clinic business it controls.
Excluding that charge, the drugstore chain reported results Thursday that topped Wall Street expectations.
Walgreens spent more than $5 billion a few years ago to acquire a majority stake in VillageMD and launch a plan to add hundreds of clinics to its stores and grow its ability to provide care.
But the drugstore chain said Thursday that it recorded a $5.8 billion, after-tax impairment charge for VillageMD in its most recent quarter as it adjusted the asset's value.
VillageMD says on its website that it runs 680 locations. It specializes in clinics that deliver value-based care. That approach, which is growing popular with some insurers, essentially rewards doctors for keeping patients healthy instead of paying them for every service they perform.
The company is dealing with slower-than-expected growth in patients and changes to reimbursement from the federal government's Medicare program, among other challenges. Walgreens executives said Thursday that VillageMD is closing around 160 clinics, or 100 more than it previously announced.
A Walgreens spokesman declined to say how many clinics were attached to the company's drugstores.
Walgreens announced its VillageMD partnership in 2020. Company leaders said then that they wanted to provide more comprehensive care to customers than what they offered in smaller clinics typically tucked in the back of its stores.
The company also said it expected to open 500 to 700 primary care clinics in 30 markets over the next five years.
But the drugstore chain has since changed CEOs. New leader Tim Wentworth has turned the company's focus more to cutting costs and improving profitability.
That has led Walgreens "to take a very big step back from operations that it used to see as central to its future," said Neil Saunders, managing director of GlobalData.
"While Walgreens is not giving up on healthcare, the shutting of unprofitable primary care facilities cannot be seen as anything but a temporary retreat," Saunders said in an email.
Walgreens said on Thursday that it booked adjusted earnings of $1.20 per share in its fiscal second quarter as sales grew 6% to $37.1 billion.
Analysts expected earnings of 82 cents per share on $35.86 billion in revenue, according to FactSet.
Walgreens also said it was narrowing its forecast for fiscal 2024 to adjusted earnings of $3.20 to $3.35 per share.
Analysts predict $3.24 per share.
Walgreens Boots Alliance Inc., based outside of Chicago in Deerfield, Illinois, runs around 13,000 drugstores globally. Most of its locations are in the United States.
Company shares rose 8 cents to $21.10 Thursday.
