) recently reported results for the month of Jan 2014. The
company posted 3.7% year-over-year sales growth to reach $6.39
billion in the month.
Total front-end sales increased 2.4% from the year-ago period,
while comparable store front-end sales improved 1.6%. Customer
traffic in comparable stores decreased 2.2% whereas basket size
increased 3.8% year over year.
Prescriptions filled at comparable stores at Walgreens slid
0.8% (or down 0.4% on a calendar day-shift adjusted basis).
According to Walgreens, a calendar shift led to 0.4% decline
in prescriptions filled at its comparable stores in January
as the month had one additional Friday and one lesser Tuesday
than the comparable prior-year month.
Walgreens experienced a negative impact of 0.8% on
prescriptions filled at comparable stores owing to a
year-over-year reduction of flu shots. Moreover, prescriptions
were impacted by 1.4% due to lower incidence of flu in
Total sales in comparable stores rose 2.9% on a year-over-year
basis. The calendar day shifts pulled down comparable store sales
by 0.3% while the generic wave in the pharmaceutical industry
during the last 12 months led to an adverse impact of 0.9% on
comparable store sales.
Walgreens' total pharmacy sales, which accounted for the
lion's share (65.6%) of total sales in the reported month,
improved 4.6% (or 4.1% on a calendar day-shift adjusted basis)
year over year. Calendar day shifts had a negative effect of 0.4%
on pharmacy sales in comparable stores. On a calendar day-shift
adjusted basis, the generic wave in the pharmaceutical industry
dragged comparable store pharmacy sales by 1.3% in January. Fewer
flu shots in this month led to a fall of 0.5% in comparable store
pharmacy sales. Moreover, lower incidence of flu negatively
impacted pharmacy sales by 1.1%.
The company opened 12 stores (including three relocations),
and closed down three stores during the reported month.
As of Jan 31, 2014, Walgreens operates 8,678 locations in 50
U.S. states, the District of Columbia, Puerto Rico, Guam and the
U.S. Virgin Islands, including 8,206 drugstores (139 more than
the year-ago period). This includes 60 net stores acquired over
the last year. The company also operates infusion and respiratory
service facilities, specialty pharmacies and mail service
The generic wave in the pharmaceutical industry is still a
threat to revenues. Nonetheless, Walgreens is poised to generate
higher profits from escalating sales of higher-margin generic
drugs. The company is also positioned on a healthy dividend
growth track. Further, the customer loyalty program is gaining
traction as reflected in increasing registrations. This should
improve customer traffic for Walgreens going forward.
In the upcoming quarter, Walgreens plans to balance its
front-end sales and margin. The company foresees the impact of
the generic wave on pharmacy margin similar to what it had been
in the first quarter of the fiscal. However, the company expects
this effect to keep on moderating through the rest of the
fiscal. Additionally, the company plans to focus on expense
management to tackle the challenging environment.
We also look forward to synergies from the Alliance Boots
deal. The company estimates that accretion from Alliance Boots in
the second quarter of fiscal 2014will be an adjusted 7 to 8 cents
The deal with
Amerisource Bergen Corporation
), likely to create a leader in the generic and branded drug
purchasing space, is another major upside. Walgreens is
optimistic about the potential financial and operational benefits
from the deal for fiscal 2014 in the form of margin expansion and
bottom-line accretion. Evidently, management seems to have
chalked out a number of strategic initiatives to revive growth at
Walgreens has designed three strategic growth drivers to
strengthen its claim for the leading position in the drug retail
market. These include creating a Well Experience, advancing
community pharmacy and establishing an efficient global
Walgreens operates in two dynamic industries viz. retail and
healthcare. These industries are growing rapidly and Walgreens is
all set to strategically strengthen its foothold in both these
spaces. The company is well positioned to exploit opportunities
in the $2.6 trillion healthcare market. Walgreens has also
introduced 2,000 new private brand items in the previous year to
attract more customers within the retail market.
Currently, the stock carries a Zacks Rank #3 (Hold).
Better-placed stocks that are worth a look include
). Actelion sports a Zacks Rank #1 (Strong Buy) and Herbalife
carries a Zacks Rank #2 (Buy).
AMERISOURCEBRGN (ABC): Free Stock Analysis
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WALGREEN CO (WAG): Free Stock Analysis Report
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