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Walgreens Reveals Promising Sep Sales - Analyst Blog

Posted
10/7/2013 3:31:00 PM
By: Zacks.com
Referenced Stocks:ABC;ESRX;HLF;WAG

Drug retailer Walgreens ( WAG ) recently reported results for the month of Sep 2013. The company posted 8.0% year-over-year sales growth to reach $5.48 billion.

Total front-end sales increased 4.1% from the year-ago period, while comparable store front-end sales improved 2.9%. Customer traffic in comparable stores was down 0.8% whereas, basket size increased 3.7% year over year.

Prescriptions filled at comparable stores at Walgreens improved 9.6% (or up 6.7% on a calendar day-shift adjusted basis) as more Express Scripts Holding Company ( ESRX ) customers are returning to the stores of the former.

Moreover, according to Walgreens, a calendar shift led to 2.9% growth in  prescriptions filled at its comparable stores in Sep 2013 as the month had one additional Monday and one lesser Saturday compared with the prior-year month.

WAG experienced a positive impact of 0.8% on comparable store figures, owing to a year-over-year increase of flu shots. On the other hand, prescriptions were impacted by 0.2% due to lower incidence of flu in Sep 2013.

Total sales in comparable stores surged 7.4% on a year-over-year basis. The calendar day shifts pulled up comparable store sales by 1.9%.However, the generic wave in the pharmaceutical industry during the last 12 months led to an adverse impact of 0.5% on comparable store sales.

Walgreens' total pharmacy sales which accounted for the lion's share (65.0%) of total sales in the reported month, improved 10.4% (or 7.3% on a calendar day-shift adjusted basis) year over year. Calendar day shifts had a positive effect of 2.9% on pharmacy sales. On a calendar day-shift adjusted basis, the generic wave in the pharmaceutical industry dragged comparable store pharmacy sales by 0.7% in September. However, more flu shots in this month led to 0.5% rise in comparable store pharmacy sales.

The company opened 17 stores (including 8 relocations) and closed one store during the reported month.

As of Sep 30, 2013, Walgreens operates 8,590 locations in 50 U.S. states, the District of Columbia, Puerto Rico and Guam, including 8,123 drugstores (77 more compared with the year-ago period). This includes 5 net stores acquired over the last year. The company also operates infusion and respiratory service facilities, specialty pharmacies and mail service facilities.

Our Take

As expected, Walgreens recorded plump sales with increasing return of Express Scripts customers following the resolution of the earlier impasse between the two companies. However, the generic wave in the pharmaceutical industry continues to hurt revenues. Nevertheless, Walgreens stands to generate higher profits from escalating sales of the higher-margin generic drugs.

Last week, the company reported a strong fourth quarter of fiscal 2013 with earnings and revenues both remaining consistent with the Zacks Consensus Estimate. While revenue witnessed slight growth, earnings growth of 15.9% was quite encouraging.

Walgreens' partnership with Alliance Boots is yielding positive results, with combined first-year synergies of $154 million, which exceeded its expectation of $125-$150 million. The Alliance Boots deal was accretive to adjusted earnings by 8 cents in the reported quarter, in line with management expectations.

Walgreen and Alliance Boots' strategic long-term relationship with AmerisourceBergen Corp. ( ABC ) is also making progress, with Walgreens and AmerisourceBergen implementing their 10-year agreement for pharmaceutical distribution last month. Moreover, the three companies plan to collaborate on global supply chain opportunities. Additionally, Walgreens and Alliance Boots together possess rights to buy a minor equity stake in AmerisourceBergen. We believe the upcoming quarterly numbers will actually reflect whether Walgreens' deal-making spree is paying off or not.

Currently, the stock carries a Zacks Rank #3 (Hold). While we choose to remain on the sidelines regarding WAG, drug retailers like Herbalife Ltd. ( HLF ), carrying a Zacks Rank #1 (Strong Buy), is worth considering.



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