Drug retailer
Walgreen Co.
(
WAG
) continued to disappoint with its monthly results as it
witnessed another dull month, with December 2012 sales declining
4.0% on a year-over-year basis to $6.71 billion.
Total front-end sales edged down 1.3% compared with the year-ago
period, while comparable store front-end sales declined 2.3%.
Customer traffic in comparable stores was down 4.0% although
basket size increased 1.7% year over year.
Prescriptions filled at comparable stores at Walgreens declined
2.3% [day-fall adjusted (DFA) flat on a year-over-year basis] in
December despite a 1.4 percentage points and 0.7 percentage point
positive impact from the higher incidence of flu in the month and
higher flu shot administration, respectively. An additional
Sunday and Monday in the month in place of a highly productive
Thursday and Friday further led to a negative impact of 2.3
percentage points on Walgreens' prescriptions.
Total sales in comparable stores declined 6.1% on a
year-over-year basis in December. A decline of 3.2 percentage
points was attributable to generic drug introductions during the
last 12 months, while a negative impact of 1.3 percentage points
was due to calendar day shifts. It led to a 4.9% decline in
Walgreens' total pharmacy sales which accounted for the lion's
share (56.7%) of total sales in December.
Moreover, comparable store pharmacy sales were down 8.9% in
December. Calendar day shifts negatively impacted comparable
store pharmacy sales by 2.3 percentage points. Flu shots
administered at pharmacies and clinics season-to-date were 5.5
million, up approximately 3.8% year over year.
Walgreens' Balance Rewards loyalty program (launched on September
2012) recorded roughly 49 million registrations through December.
The company opened seven stores, acquired one and closed one
during the month.
As of December 31, 2012, Walgreens operated 8,524 locations in 50
states, the District of Columbia, Puerto Rico and Guam, including
8,061 drugstores (243 more compared with the year-ago period).
The company also operates infusion and respiratory service
facilities, specialty pharmacies and mail service facilities.
Our Take
Over the past several months, Walgreens has been struggling to
post relatively strong sales. A possible explanation could be the
loss of customers due to its impasse with
Express Scripts
(
ESRX
). On the upside, the company's sluggish performance is showing
signs of fading with the return of customers following its new
multi-year pharmacy network agreement with Express Scripts (from
September 2012).
Walgreens' Balance Rewards customer loyalty program is also
gaining traction as reflected in the increasing registrations.
This should improve customer traffic for the company in future.
In addition, Walgreens acquisition of Alliance Boots should yield
positive results going forward. We are optimistic about the
company achieving its long-term goals (revenues of more than $130
billion through fiscal 2016) on the back of acquisition
synergies.
We have a long-term 'Neutral' recommendation on Walgreens. The
stock carries a Zacks #3 Rank (Hold) in the short term. Its peer
CVS Caremark
(
CVS
) and
Rite Aid Corporation
(
RAD
) carry a Zacks #1 Rank (Strong Buy).
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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