Deerfield, IL-based drug retailing chain Walgreens, which is now a fully-owned subsidiary of the first global pharmacy-led health and wellbeing enterprise Walgreens Boots Alliance Inc. (WBA), recently reported solid sales results for Dec 2014. Following the news release, the company's shares rose 0.26% to eventually close at $74.69 yesterday.
Walgreens posted a 10.2% year-over-year rise in sales to $7.92 billion. Comparable store sales increased 9.2%.
In the month, Walgreens' total comparable store sales were positively affected by 1.3 percentage points due to calendar day shifts and 0.5 percentage point due to higher incidence of flu. However, generic drug introductions in the last 12 months negatively impacted total comparable sales by 1.0 percentage point.
Walgreens' total front-end sales in December increased 3.5% from the year-ago period, while front-end sales in comparable stores grew 2.6%. Customer traffic in comparable stores improved 0.3%, whereas basket size rose 2.3% from the year-ago level.
Prescriptions filled at comparable stores at Walgreens were up 7.8% (up 5.7% on a calendar day-shift adjusted basis) in Dec 2014. As per Walgreens' management, a calendar shift has resulted in a 2.1% improvement in prescriptions filled at comparable stores, since the month had one additional Wednesday and one less Sunday, compared to the same month a year ago. Moreover, Walgreens experienced a positive impact of 1.2% on prescriptions filled at comparable stores owing to a higher incidence of flu.
Walgreens' total pharmacy sales increased 15.7% on a year-over-year basis and accounted for 61.3% of total sales in Dec 2014. Pharmacy sales in comparable stores rose 14.2% (or 12.1% on a calendar day-shift adjusted basis).
Calendar day shifts had a favorable impact of 2.1% on pharmacy sales in comparable stores. On a calendar day-shift adjusted basis, the generic wave in the pharmaceutical industry dragged comparable store pharmacy sales by 1.5% in the month, while higher incidence of flu led to an increase of 0.9% in comparable store pharmacy sales.
Season-to-date flu shots administered at pharmacies and clinics were almost 7.6 million, up 13.4% year over year.
The company opened 4 stores and closed down 4 during the reported month.
Fiscal 2015 year-to-date sales for the first four months were $27.49 billion, up 7.7% from the same period, last year.
As of Dec 31, 2014, Walgreens operated 8,330 store locations in 50 U.S. states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands, including 8,229 drugstores (up 29 from the year ago level). The store count includes 10 net stores acquired over the last 12 months. The company also operates infusion and respiratory services facilities, specialty pharmacies and mail service facilities.
Our Take
The generic wave in the pharmaceutical industry has been adversely affecting Walgreens' store pharmacy sales and posing a threat to the company's profitability for quite some time now. The downside is possibly attributable to generic drug price inflation and Walgreen's fewer brand-to-generic drug conversions.
Walgreens expects this generic inflation to continue through the rest of fiscal 2015. Currently, management is tirelessly negotiating with its payers to raise reimbursement rates to protect the company against increasing generic drug procurement costs. However, we are encouraged by the company’s impressive sales performance in the reported month which was backed by calendar-day shifts and an early start to the flu season.
Last week, Walgreens completed the second phase of its acquisition of the UK-based Alliance Boots to form Walgreens Boots Alliance Inc. The acquisition will reasonably expand Walgreen's international presence. The new global enterprise combines Walgreen, the largest drugstore chain in the U.S.; Boots, the market leader in European retail pharmacy; and Alliance Healthcare, the leading international wholesaler and distributor. The combined entity spans over 25 countries with more than 12,800 stores, and over 370,000 employees.
The merger will also bring together a unique portfolio of retail, wholesale, service and product brands, alongside the world’s largest pharmaceutical wholesale and distribution network. With attainment of the global stature, Walgreens will be able to generate significant and sustainable benefits for local markets as well as all stakeholders.
Zacks Rank
Currently, Walgreens retains a Zacks Rank #3 (Hold). Some other well-ranked stocks worth reckoning are CVS Health Corporation (CVS), AngioDynamics Inc. (ANGO) and Edwards Lifesciences Corp. (EW). All the three stocks carry a Zacks Rank #2 (Buy).
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