) recorded a decline of 3.3% year over year in total sales to
$17.77 billion for the third quarter of fiscal 2012. Walgreens
sales figure have been dragging since the termination of the
company's contract with
Express Scripts Inc.
) in January 2012.
Total front-end sales decreased 0.7% with a 6.5% fall in
comparable store front-end sales. Prescriptions filled at
comparable stores decreased 9% in the reported quarter. Comparable
pharmacy sales also witnessed a decline of 9.8%.
For the month of May 2012, the company recorded a dip of 1.6% in
year-over-year sales to $5.98 billion. Total front-end sales
increased 0.3% year over year for the reported month, whereas
comparable store front-end sales decreased 1%. The company also
witnessed a 2.3% decrease in customer traffic in comparable
Simultaneously, the number of prescriptions filled by patients
reduced 7.6% in May. A calendar day shift in May 2012 with two
additional weekdays (Wednesday and Thursday) and one less Sunday
and Monday had a positive impact of 1.3% on the prescriptions
filled in comparable stores. Additionally, higher incidence of the
flu accounted for 0.1% of the increase in the number of
The termination of the Express Scripts contract continues to
hurt Walgreens with a negative impact of 10.8% in May. The Express
Scripts contract had contributed significantly to the number of
prescriptions in comparable stores in the year-ago period,
accounting for 12.7% of Walgreen prescriptions.
On the other hand, pharmacy sales, accounting for 63.1% of total
sales, also decreased by 3.9% in May with an 8.5% fall in
comparable stores pharmacy. The positive impact of 1.3% due to
calendar day shifts on comparable stores pharmacy sales was offset
by the negative impact of 3.9% by introduction of generic drugs
during the last 12 months.
Also worth mentioning in this context is the negative impact of
0.3% and 10.8% due to product mix of cough and flu drugs, and the
termination of the Express Scripts contract, respectively.
Comparable store sales declined 5.8% despite the positive impact
of 0.8% due to calendar-day shifts.
Calendar year sales to date were $29.43 billion, down 2.2% from
the same period in 2011. Fiscal year to date sales for the nine
months came in at $54.57 billion, up 0.7% from the first nine
months of fiscal 2011.
Walgreens opened seven new stores in May 2012, including one
relocation. Currently, Walgreens operates from 8,341 locations in
50 states along with District of Columbia, Puerto Rico and
Management believes that the trend in the number of filled
prescriptions has improved since the onset of calendar 2012. The
company plans to initiate a number of steps such as changing
prescription benefit managers and altering the language in the RFPs
to boost the number of filled prescriptions.
These changes will provide patients continued access to
Walgreens and its services. The company also plans to extend its
multi-year agreement to strengthen its strategic alliance with the
largest pharmacy benefit manager in the domestic
Walgreens continues to be adversely affected by the loss of the
Express Scripts contract due to unsuccessful contract renewal
negotiations. Despite its efforts, the loss of the contract
continues to drag the company's performance. With 20% market share
in retail pharmacy and a solid financial footing, the company
expects to overcome the negative impact.
The company earlier revealed its plan to reduce its selling,
general and administrative expenses and costs of goods sold to
offset almost half of the reduction in gross profit due to the
contract loss in fiscal 2012. Further clarity is awaited on the
successful execution of this plan.
Walgreens currently retains a Zacks #3 Rank, which translates
into a short-term Hold rating. We maintain a long-term Neutral
recommendation on the stock.
EXPRESS SCRIPTS (ESRX): Free Stock Analysis
WALGREEN CO (WAG): Free Stock Analysis Report
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