Another Month of Plump Sales for WAG - Analyst Blog

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Drug retailer Walgreen Co. ( WAG ) recently disclosed exhaustive results for the month of Apr 2013. The company posted another month of sales improvement after March as April sales inched up 3.8% year over year to $5.98 billion.

However, total front-end sales declined 2.9% compared with the year-ago period, while comparable store front-end sales decreased 4.3%. These numbers are a stark contrast from the Mar 2013 results when Walgreens posted improvement in total and comparable store front-end sales. Customer traffic in comparable stores was down 5.9% although basket size increased 1.6% year over year.

For the combined period of March and April that includes the Easter holiday season, comparable store front-end sales dipped 0.2%. Customer traffic decreased 4% while basket size increased 3.8%.

Prescriptions filled at Walgreens' comparable stores increased 9.7% in the reported month on the heels of increasing return of Express Scripts ( ESRX ) customers to pharmacies. The calendar shifts of an additional Tuesday and one less Sunday led to a positive impact of 3.4 percentage points despite the exclusion of Easter holiday (Mar 31) from the reported month. After accounting for these calendar shifts, prescriptions filled shot up 6.3%.

Total sales in comparable stores rose 1.2% on a year-over-year basis. An improvement of 2.2 percentage points was attributable to calendar day shifts while generic introduction in the pharmaceutical industry during the last 12 months hampered comparable store sales by 2.6 percentage points.

Walgreens' total pharmacy sales which accounted for the lion's share (64.5%) of total sales in the reported month improved 7.3% year over year. Comparable store pharmacy sales increased 4.7% due to the positive impact of 3.4 percentage points from calendar shifts. The generic wave in the pharmaceutical industry had a negative impact of 4.1 percentage points on calendar day-shift adjusted comparable store pharmacy sales. Adjusting for calendar shifts, comparable store pharmacy sales increased 1.3%.

To date, Walgreens' Balance Rewards loyalty program (launched in Sep 2012) has recorded over 68 million registrations. The company opened 14 stores (including 4 relocations) and closed one during Apr 2013.

As of Apr 30, 2013, Walgreens operated 8,550 locations in all 50 states, the District of Columbia, Puerto Rico and Guam, including 8,086 drugstores (231 more compared with the year-ago period with 99 net stores acquired during the last 12 months). The company also operates infusion and respiratory service facilities, specialty pharmacies and mail service facilities.

Our View

With two consecutive months of sales improvement, it seems like Walgreens is gaining positive momentum. The benefits of the return of Express Scripts customers are reflected in the pharmacy store sales growth. Going forward, we expect Walgreens to gain further from the resolution of the earlier impasse between the two companies.

On the tepid side, the generic wave continues to hurt revenues. Also, Walgreens' front-end stores sales declined in the month.

As a result, the stock carries a Zacks Rank #3 (Hold). While we have a neutral stance on Walgreens, Rite Aid Corporation ( RAD ) and CVS Caremark ( CVS ), carrying a Zacks Rank #2 (Buy) warrant a look.



CVS CAREMARK CP (CVS): Free Stock Analysis Report

EXPRESS SCRIPTS (ESRX): Free Stock Analysis Report

RITE AID CORP (RAD): Free Stock Analysis Report

WALGREEN CO (WAG): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: CVS , ESRX , RAD , WAG

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