The termination of the
) contract in January 2012 continues to adversely affect
) sales. The company, posted dismal sales results for the month of
August 2012 and recorded a decline of 4.5% in year-over-year
Total front-end sales were up 0.9%, while comparable store
front-end sales slipped 0.6%. Customer traffic in comparable stores
fell 2.2% but basket size increased 1.6% year over year.
Simultaneously, the number of prescriptions filled by patients
Prescriptions filled at comparable stores of Walgreen decreased
6.8% for the month even with a 0.4 percentage point of positive
impact due to higher incidence of flu in the month. The termination
of the Express Script contract, a significant contributor to
Walgreen's total sales (12.6% of total prescriptions filled in
August 2011), led to a negative impact of 10.7 percentage points on
Walgreen's prescriptions filled.
Total sales in comparable stores decreased 8.2% in August, 5.1
percentage points of which were due to generic drug introductions
in the last 12 months. All these led to a 7.2% decline in
Walgreen's total pharmacy sales which made up the lion's share
(64.1%) of Walgreen's total sales in August.
Moreover, there was a 12.4% decline in comparable store pharmacy
sales, 7.9 percentage points of which were due to the introduction
of generic drugs in the last one year and a 10.7 percentage point
impact from to its separation from the Express Scripts network in
With this, the company recorded a decline of 4.9% year over year
in total sales to $17.08 billion for the fourth quarter of fiscal
2012, missing the Zacks Consensus Estimate of $17.21 billion. For
fiscal 2012, total sales came in at $71.64 billion, down marginally
by 0.8% and missing the Zacks Consensus Estimate of $71.76
Calendar year-to-date sales were $46.49 billion, down 3.2%
compared to the same period last year. Notably, Walgreen is slated
to release its fourth quarter and fiscal 2012 results (ending
August 2012) on September 28, 2012, before the market opens.
At the end of August 2012, Walgreen operated 8,386 locations in
50 states, the District of Columbia, Puerto Rico and Guam which
includes 7,929 drugstores, including 42 stores acquired over the
last one year. The company also operates infusion and respiratory
services facilities, specialty pharmacies and mail service
As expected, the loss of the Express Scripts contract continued
to affect Walgreen's financials 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 onwards, 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 the PBM giants will gain,
so we expect their association to continue in the future.
Walgreen currently retains a Zacks #2 Rank, which translates
into a short-term Buy 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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