) posted dismal sales results for the month of September 2012,
recording a decline of 7.8% year over year to $5.48 billion.
Total front-end sales slipped 0.4%, while comparable store
front-end sales were down 1.5%. Customer traffic in comparable
stores fell 2.3% but basket size increased 0.8% year over year.
Simultaneously, the number of prescriptions filled by patients
Prescriptions filled at comparable stores of Walgreen decreased
10.3% [day-fall adjusted (DFA) 6.8%] for the month even with a 0.1
percentage point of positive impact due to higher incidence of 'flu
in the month. Fewer 'flu shots in the month negatively impacted
prescriptions filled by 0.4 percentage point. Additionally, one
extra Saturday and Sunday in the month with one less Thursday and
Friday, led to a negative impact of 3.5 percentage points on
Walgreen's prescriptions filled.
Total sales in comparable stores decreased 11.1% in September.
The decline was attributable to a decrease of 5.3 percentage points
due to generic drug introductions during the last 12 months as well
as the negative impact of 2.2 percentage points due to calendar day
shifts. All these led to a 12.3% decline in Walgreen's total
pharmacy sales which made up the lion's share (63.7%) of Walgreen's
total sales in September.
Moreover, there was a 16.1% decline in comparable store pharmacy
sales, 8.4 percentage points of which were due to the introduction
of generic drugs in the last one year and a 3.5 percentage point
impact from calendar day shifts. Flu shots administered at
pharmacies and clinics season-to-date were 1.5 million down 16.7%
year over year.
At the end of September, 2012, excluding the recent acquisition
of USA Drug chain, Walgreen operated 8,400 locations in 50 states,
the District of Columbia, Puerto Rico and Guam which includes 7,944
drugstores (167 more compared to the year-ago period). The company
also operates infusion and respiratory service facilities,
specialty pharmacies and mail service facilities.
Last Quarter Update
Notably last week, Walgreen released its fourth quarter and
fiscal 2012 results (ending August 2012). The company reported
adjusted earnings of 48 cents per share in the quarter, lagging the
year-ago adjusted level of 57 cents per share. For fiscal 2012, the
company reported adjusted earnings of $2.53 per share compared to
$2.64 in the previous year.
The fourth quarter and fiscal 2012 sales were at $17.1 billion,
down 4.9% year over year and $71.64 billion, down 0.8%,
Since January 2012, Walgreen has not been a part of the
) pharmacy provider network, which had an adverse effect on its
sales throughout the earlier fiscal. This led to a negative impact
of 6 cents per share (net off associated cost reduction) during the
last quarter and 21 cents per share during the fiscal year.
However in July, Walgreen and Express Scripts entered into a new
multi-year pharmacy network agreement per which, the pharmacy
network of Walgreen has started filling prescriptions from Express
Scripts customers from September 15, 2012.
We certainly remain optimistic about Walgreen's renewed
inclusion in the Express Scripts network. The company is bound to
leave no stone unturned to compensate for the losses incurred since
the termination of the previous deal. To stimulate customer demand
amidst a challenging macroeconomic scenario, the company also
launched a customer loyalty program 'Balance Rewards' effective
September 16. Registrations for this loyalty program, totaled
nearly 13 million in September.
We believe, with the resumption of the contract, sales are
expected to improve, though winning back clients remain crucial.
This is very much reflected in Walgreen's reduction in customer
traffic during the month of September. There is also a lack of
clear visibility with respect to the realization of synergies with
Alliance Boots. The competitive landscape is also intense with
Rite Aid Corporation
CVS Caremark Corporation
Walgreen currently retains a Zacks #3 Rank, which translates
into a short-term 'Hold' rating. We maintain a long-term 'Neutral'
recommendation on the stock.
CVS CAREMARK CP (CVS): Free Stock Analysis
EXPRESS SCRIPTS (ESRX): Free Stock Analysis
RITE AID CORP (RAD): Free Stock Analysis Report
WALGREEN CO (WAG): Free Stock Analysis Report
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