) reported sales of$6.39 billion for July, 6.1% higher compared to
the same period last year. Having lost its positive growth momentum
in 2012, Walgreen's top line growth re-accelerated since the
company resolved its dispute with pharmacy benefits management
company Express Scripts in September 2012. Despite a soft macro
environment, Walgreen started fiscal 2014 on a strong note and has
retained its growth momentum so far this year. Higher daily living
sales, strong performance in prescriptions filled, and
increasing pharmacy market share have all helped Walgreen post
continuous improvement in its top line growth.
The company's comparable store sales increased by 5.2% in July.
Pharmacy sales for the month, which accounted for 66.5% of the
total sales, grew 9.5%. Comparable store pharmacy sales and
prescriptions filled at comparable stores increased by 7.6% and
3.7%, respectively. Total front-end sales increased 1.4% while
comparable store front-end sales grew 1.1%. Though customer traffic
in comparable stores continued to decline in June (2.6% lower),
basket size expanded by 3.7%. Calendar 2014 year-to-date sales
stand at $44.51 billion, an increase of 5.9% compared to the same
period in 2013. Fiscal 2014 year-to-date sales for the first 11
month are $70.03 billion, 6% higher than last year.
Walgreen's stock price has declined by approximately 15% since
the company announced earlier this week its plan to complete the
acquisition of Europe-based Alliance Boots. Driving this sharp
decrease was the board's decision to retain its US tax domicile,
rather than opting for an "inverted" structure that would shift its
headquarters overseas to escape high US and state corporate tax
regimes. The company also lowered its guidance, further adding to
the downward pressure. It now expects its fiscal 2016 revenue in
the range of $126 billion to $130 billion (its initial estimate was
$130 billion) and adjusted earnings per share of $4.25 to $4.60.
Earnings prior to the deduction of interest, tax and amortization
expenses is expected to be "flat to a little up" through 2016.
We believe that the market overreacted to the news and
that Walgreen stands to gain a lot from the Alliance Boots
The Market May Have Overreacted To Walgreen's
Decision Against Tax Aversion
) Walgreen's acquisition of Alliance Boots, subject to shareholder
and various regulatory approvals, will help form the first global
pharmacy-led, health and well-being enterprise. The large scale and
global operations will help the two companies address the rising
cost of prescription drugs in America and worldwide.
As of July end, Walgreen operated 8,295 stores across 50 states
in the U.S., the District of Columbia, Puerto Rico, Guam and
the U.S. Virgin Islands. The largest footprint in the U.S. places
the company in a strong position to benefit, both from an
aging U.S. population and from the Affordable Care
Act expansion of insurance to millions of Americans.
View our analysis for Walgreens
Our price estimate of $64 for Walgreens is marginally higher
than the current market price.
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