(Reuters) -Walgreens Boots Alliance recorded a $5.8 billion impairment charge on its investment in VillageMD on Thursday, at a time when the pharmacy operator was aiming to save costs.
The impairment follows years of investment in the cash-burning operator of doctors' clinics during Rosalind Brewer's tenure as Walgreens CEO. Brewer wanted to expand the company's reach as a healthcare provider.
Walgreens had invested over $6 billion to hold a majority stake in VillageMD over the last few years. It also supported its acquisition of urgent care provider Summit Health with another $3.5 billion investment in 2022.
But the strategy shifted under new CEO Timothy Wentworth, who is focused on improving profitability and announced a $1-billion cost-cutting plan in October.
The company reported a net loss of $5.9 billion for the quarter ended Feb. 29, mainly due to the impairment.
It also cut the higher end of its profit forecast for fiscal-year 2024, citing economic challenges for its retail operations.
The cut in forecast now means there is a lower base for financial-year 2025 earnings to grow from. It "only heightens scrutiny on what WBA's core earnings power actually is", Leerink Partners analyst Michael Cherny said in a note.
Walgreens has also been grappling with decreased spending on personal care and beauty products by inflation-weary consumers, exacerbating the hit from waning demand for its COVID-19 vaccines and testing kits.
Shares of the company were down 1.4% in premarket trading
On an adjusted basis, Walgreens reported earnings of $1.20 per share for the quarter, compared with analysts' average estimate of 82 cents per share, according to LSEG data.
It now expects an adjusted profit of $3.20 to $3.35 per share for its financial year ending Aug. 31, retaining the lower end of the $3.20 to $3.50 per share range it gave last January.
(Reporting by Puyaan Singh and Leroy Leo in Bengaluru; Editing by Pooja Desai)
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