The termination of the
) contract continues to hurt
) sales, which once again disappointed in the month of April 2012.
The company recorded a 3.7% and 3.9% dip in year-over-year and
sequential sales, respectively, to $5.78 billion for the month.
Total front-end sales inched down 0.5% with a 2.2% reduction in
comparable store front-end sales. Customer traffic in comparable
stores fell 3.0% but basket size increased 0.8% year over year.
Simultaneously, the number of prescriptions filled by patients
reduced drastically. On a year-over-year basis, prescriptions
filled at comparable stores were down 7.8%.
The termination of the Express Script contract, which used to
contribute a significant part of Walgreen's total sales (12.6% of
total prescriptions filled in April 2011), led to a negative impact
of 10.7 percentage points on Walgreen's prescription filled.
Additionally, lower incidence of flu affected the prescriptions
filled by 0.2 percentage point.
All these directed to a 6.3% decline in Walgreen's total
pharmacy sales,which attributed the lion's share of the total sales
of Walgreen (62.5%) in April. Moreover, there was ahuge 8.9%
decline in comparable store pharmacy sales impacted by Express
Scripts contract loss (10.7 percentage points), the introduction of
generics in the last 12 months (3.4) and lower incidence of
cough, cold and flu (0.5).
However, this was somewhat offset by the calendar day shifts in
April, which positively impacted comparable store pharmacy sales by
0.6 percentage point.
Comparable stores sales of Walgreens decreased 6.4% year over
year with 0.4 percentage point of positive impact from calendar day
shifts. Calendar year-to-date, total sales declined 2.2% to $23.46
billion compared with the same period last year. However,
year-to-date fiscal sales were up 1% to $48.61 billion.
The termination of the Express Scripts contract continues to
affect Walgreen's performance. Walgreen's financials will
continue to be affected by the loss of the contract. Also, high
unemployment levels and lower discretionary spending have emerged
as headwinds for Walgreen over the past few quarters.
However, Walgreen is currently working toward establishing
itself as a leading provider of pharmacy and health and wellness
solutions. The company has been taking steps over the last few
years to align its assets. We are encouraged by Walgreen's recent
strategic decisions, the latest being the acquisition of certain
assets of specialty pharmacy services provider
With this transaction ( completed in May 2012), Walgreen got
hold of BioScrip's community specialty pharmacy business in 30
locations across 16 states in the US and the District of Columbia,
primarily serving HIV, oncology and transplant patients. Walgreen
anticipates the transaction to have no material impact on its
fiscal 2012 earnings. However, the transaction will be moderately
accretive in fiscal 2013.
Meanwhile, Walgreen is expanding its business with other payers
and customers and implementing cost-control initiatives. The
company is reassured by the fact that more than 100 of Express
Scripts clients, encompassing health plans and employers, would
continue with Walgreen pharmacies in 2012. The company aims to
retain 10 million prescriptions annually and maintain 97-99% of the
2011 prescription volumes at fiscal 2012 end.
The company is experiencing a growth in prescription filing in
its comparable stores, consecutively in the last three months. In
April the company registered a sequential growth in its comparable
store prescription filled. Also in April, Walgreen opened 7 stores
including one relocation and 2 acquisitions. As of April 30,
Walgreens operated 8,307 locations in all 50 states, the District
of Columbia, Puerto Rico and Guam.
Under these circumstances, we currently prefer to remain on the
sidelines until more visibility is obtained. Walgreen retains a
Zacks #3 Rank (short-term Hold rating). We have Neutral
recommendation on the stock over the long term.
BIOSCRIP INC (BIOS): Free Stock Analysis Report
EXPRESS SCRIPTS (ESRX): Free Stock Analysis
WALGREEN CO (WAG): Free Stock Analysis Report
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