The termination of the
) contract in January 2012 continues to hurt
) sales, which once again posted disappointing sales results in
July, 2012. The company recorded a 3.7% dip in year-over-year sales
to $5.81 billion for the month.
Total front-end sales slipped 0.8%, with 2.4% reduction in
comparable store front-end sales. Customer traffic in comparable
stores fell 3.8% but basket size increased 1.4% year over year.
Simultaneously, the number of prescriptions filled by patients
Prescriptions filled at comparable stores of Walgreen decreased
5.2% year over year even with 2.2 percentage point of positive
impact from calendar day shifts (one extra Monday and Tuesday with
one less Friday and Saturday compared with July 2011) and 0.3
percentage point of positive impact due to higher incidence of flu
in the month.
The termination of the Express Script contract, which used to
contribute a significant part of Walgreen's total sales (12.7% of
total prescriptions filled in April 2011), led to a negative impact
of 10.8 percentage points on Walgreen's prescriptions filled.
Total sales in comparable stores in July 2012 declined 7.0% year
over year. While the calendar day shifts had a positive impact of
1.4 percentage points on total comparable store sales, this was
more than offset by 4.5 percentage points of negative impact due to
generic drug introductions in the last one year.
Calendar year-to-date sales were $40.65 billion, down 3.0%
compared to the year-ago period. However, year-to-date fiscal sales
were down 0.4% marginally to $65.79 billion.
All these led to a 5.0% decline in Walgreen's total pharmacy
sales which made up the lion's share (63.7%) of Walgreen's total
sales in July. Moreover, there was a 9.7% decline in comparable
store pharmacy sales, impacted by the Express Scripts contract loss
(10.8 percentage points), the introduction of generics in the last
12 months (7.1) and lower incidence of cough, cold and flu
However, this was somewhat offset by the calendar day shifts in
July, which positively impacted comparable store pharmacy sales by
2.2 percentage points.
Walgreen's financials will continue to be affected by the loss
of the Express Scripts contract throughout fiscal 2012 (ending in
August 2012). However, we note that in July 2012 both the companies
entered into another multi-year pharmacy network agreement in order
to settle their long-standing dispute. Per the settlement,
September 15, 2012 onward the pharmacy network of Walgreen will go
back to filling prescriptions from Express Scripts customers.
The scenario is expected to improve radically with this deal
between the two stalwarts. Following the recent agreement, we
believe that Walgreen is poised to compensate for the losses
incurred since the termination of the previous deal in January
2012. The agreement indicates that both of the PBM giants will
gain, so we expect their association to continue in the future.
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, similar to Express Scripts.
EXPRESS SCRIPTS (ESRX): Free Stock Analysis
WALGREEN CO (WAG): Free Stock Analysis Report
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