Illinois-based drug retailing chain
) reported robust sales for the month of June. Following the news
release, the company's share price inched up 0.7% to eventually
close at $73.58 yesterday.
Walgreens posted 8.9% year-over-year rise in sales to $6.3
billion in June this year from $5.8 billion in June 2013.
Comparable store sales increased 7.5% in the month.
Walgreens' total comparable store sales were positively affected
by 1.7% due to calendar day shifts, while it was negatively
affected by 0.9% due to generic drug introductions in the last 12
Walgreens' total front-end sales increased 1.8% in the month,
while front-end sales in comparable stores grew 1.3%. Customer
traffic in comparable stores decreased 2%, whereas basket size rose
3.3% from the year-ago level.
Prescriptions filled at comparable stores at Walgreens were up
7.3% (up 4.7% on a calendar day-shift adjusted basis) in the month.
As per Walgreens' management, a calendar shift has resulted in 2.6%
rise in prescriptions filled at comparable stores, since the month
had one additional Monday and one fewer Saturday, compared to the
same month a year ago.
Walgreens' total pharmacy sales increased 13.4% on a
year-over-year basis. It accounted for 65.2% of total sales in June
2014. Pharmacy sales in comparable stores rose 11.3% (or 8.7% on a
calendar day-shift adjusted basis). On a calendar day-shift
adjusted basis, generic drug introductions in the last 12 months
adversely impacted comparable store pharmacy sales by 1.4%.
Walgreens' sales for the first six months of 2014 climbed 5.9%
to $38.1 billion from $36.0 billion in the first half of 2013. For
the first 10 months of fiscal 2014, sales rose 6% to $63.65 billion
from $60.0 billion reported for the same period in fiscal 2013.
Walgreens opened 15 stores in the month, including 3
relocations, and closed 13. Nearly all the June store closings were
part of the company's previously announced efforts to optimize its
asset base by shutting down a total of 76 drugstores.
As of June 30, 2014, Walgreens operated 8,319 store locations in
50 U.S. states, the District of Columbia, Puerto Rico, Guam and the
U.S. Virgin Islands, including 8,215 drugstores (up 117 from the
year ago level). The store count includes 70 net stores acquired
over the last 12 months.
Walgreens also operated infusion and respiratory services
facilities, specialty pharmacies and mail service facilities. Its
Take Care Health Systems subsidiary controls more than 400 in-store
convenient care clinics.
No doubt the generic wave in the pharmaceutical industry has been
adversely affecting Walgreens' store pharmacy sales and posing a
threat to the company's profitability for quite some time. This is
evident from the contraction in the company's gross margin by 48
basis points in the third quarter of the fiscal year on account of
generic drug price inflation and Walgreen's fewer brand-to-generic
However, the company has been working tirelessly to improve its
efficiency, so that it can provide high quality and cost effective
pharmacy services, which in turn will reduce total pharmacy costs.
In the upcoming quarter, Walgreens expects generic drug
introductions to rise to the point where it will no more be a drag
on margins. In addition, although gross margin contracted, both
pharmacy and front end margins benefited from purchasing synergies
from the company's joint venture with Alliance Boots.
At the end of May 2014, Walgreens had 81 million active Balance
Rewards members. This will allow the company to extend its offers
to a large number of customers. Moreover, Walgreens opened 39 new
drug stores in the third-quarter of fiscal 2014 in an attempt to
optimize its store footprint.
We look forward to synergies from the Alliance Boots deal, which
contributed 15 cents per share to Walgreens' third-quarter fiscal
2014 earnings. The company has estimated that accretion from
Alliance Boots in the fourth quarter of fiscal 2014 will be 6 to 7
cents per share on an adjusted basis.
Currently, Walgreens holds a Zacks Rank #3 (Hold). Some
better-ranked medical stocks that warrant a look are
ANI Pharmaceuticals, Inc.
). All these stocks carry a Zacks Rank #1 (Strong Buy).
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WALGREEN CO (WAG): Free Stock Analysis Report
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