) reported adjusted earnings of 63 cents per share in the fourth
quarter of fiscal 2012, well ahead of the Zacks Consensus Estimate
of 55 cents. However, earnings lagged the year-ago adjusted level
of 66 cents per share.
The adjusted figure takes into account the negative impact of 9
cents per share related to the Alliance Boots transaction, 10 cents
per share from LIFO provision and 5 cents per share from
acquisition-related amortization costs.
For fiscal 2012, the company reported adjusted earnings of $2.93
per share, also surpassing the Zacks Consensus Estimate of $2.59
but unchanged from the previous year.
Since January 2012, Walgreen has not been a part of
) pharmacy provider network, which has adversely affected its
sales. This led to a negative impact of 6 cents per share (net off
associated cost reduction) during the quarter and 21 cents per
share during the fiscal year.
The company has already reported sales for the fourth quarter
and fiscal 2012, which were at $17.1 billion, down 4.9% year over
year and $71.64 billion, down 0.8%, respectively. With several
branded drugs going generic, Walgreen's sales were adversely
affected by $664 million in the fourth quarter and by $1.4 billion
in fiscal 2012.
Front-end comparable store sales (those open for more than
a year) during the quarter dropped 1.3%. In addition, a 3.2%
decline in customer traffic in comparable stores coupled with a
1.9% rise in basket size led to an 8.7% decline in total sales in
Prescription sales, accounting for 63.3% of sales in the
quarter, declined 8.1%, while prescription sales in comparable
stores were down 12.8%. Moreover, during the quarter, Walgreen
filled 188 million prescriptions (down 6.9% year over year) while
prescriptions filed at comparable stores dropped 8%.
Gross profit in the quarter dropped 4.6% year over year to $4.8
billion though gross margin expanded 10 basis points (bps) to
28.3%. Pharmacy margin benefited from generic drug sales, partially
offset by market reimbursements, specialty pharmacy mix and LIFO.
With selling, general and administrative (SG&A) expenses
unchanged at $4.2 billion, operating margin during the quarter
contracted 120 bps to 3.4%.
At the end of fiscal 2012, Walgreen had $1.3 billion in cash and
cash equivalents, compared with $1.6 billion at the end of fiscal
2011. Moreover, during fiscal 2012, the company generated operating
cash flow of $4.4 million, free cash flow of $2.9 billion and
increased dividend rate in June, 2012 by 22.2% to 27.5 cents per
share. During the fiscal year, the company returned $1.9 billion to
shareholders through share repurchases and dividend payments.
Fiscal 2012 has been a challenging year for Walgreen as it
experienced lower sales owing to the loss of contract with Express
Scripts, high unemployment levels and lower discretionary spending.
However, the company has undertaken several strategic initiatives.
Significant among these being the 45% stake in Alliance Boots to
become the world's first pharmacy driven health and wellbeing
Walgreen also acquired USA Drug, a mid-South's regional
drugstore chain. We expect these new ventures to boost growth going
Moreover, with the resumption of the contract with Express
Scripts sales are expected to improve, though winning back clients
remains crucial. As a result, to stimulate customers' demand amidst
a challenging macroeconomic scenario, the company also launched a
customer loyalty program.
We have a Neutral recommendation on Walgreen over the long term.
The stock retains a Zacks #3 Rank (short-term Hold rating).
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