Drug retailer Walgreen Co. (WAG) recently reported results for the month of Sep 2014. The company posted 9.4% year-over-year sales growth to reach $6.48 billion in the month.
Total front-end sales increased 2.2% from the year-ago period, while comparable store front-end sales improved 1.7%. Customer traffic in comparable stores decreased 2.7% whereas basket size increased 4.4% year over year.
Prescriptions filled at comparable stores at Walgreens increased 6.6% (or up 3.9% on a calendar day-shift adjusted basis). According to Walgreens, this month had one additional Tuesday and one lesser Sunday than the comparable prior-year month, whichpositively impacted prescriptions filled at comparable stores by 2.7%.
Total sales in comparable stores rose 7.9% on a year-over-year basis. The calendar day shifts positively impacted comparable store sales by 1.8% while the generic wave in the pharmaceutical industry during the last 12 months led to an adverse impact of 1.3% on comparable store sales.
Walgreens’ total pharmacy sales, which accounted for the lion’s share (67.8%) of total sales in the reported month, improved 14.2% year over year. Comparable store pharmacy sales increased 11.3% (up 8.6% on a calendar day-shift adjusted basis). Calendar day shifts had a positive effect of 2.7% 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 1.9% in September. Season-to-date flu shots administered at pharmacies and clinics were more than 2.1 million, up 11.5% year over year.
The company opened 9 stores (including 4 relocations) and closed down 4 stores during the reported month.
As of Sep 30, 2014, Walgreens operates 8,308 locations in 50 U.S. states, the District of Columbia, Puerto Rico, Guam and the U.S. Virgin Islands, including 8,207 drugstores (84 more than the year-ago period). The company also operates infusion and respiratory service facilities, specialty pharmacies and mail service facilities.
Our Take
Last week, Walgreens reported a mixed fiscal fourth-quarter 2014 with in-line earnings and a marginal beat over the top line. The generic wave in the pharmaceutical industry remains a threat to revenues, as aptly reflected in the company's quarterly sales figure.
Nonetheless, Walgreens is poised to generate better profits from escalating sales of higher-margin generic drugs. The company is also positioned on a healthy dividend growth track. Further, the customer loyalty program is gaining traction as reflected in increasing registrations. This should improve customer traffic for Walgreens going forward.
We currently look forward to synergies from the Alliance Boots deal, expected in fiscal 2015. Moreover, the agreement with AmerisourceBergen – likely to create a leader in the generic and branded drug purchasing space – is another major upside.
Walgreens currently has a Zacks Rank #3 (Hold). While we choose to remain on the sidelines regarding WAG at present, stocks worth considering in the broader medical sector are CVS Health Corporation (CVS), Abaxis, Inc. (ABAX) and Amedisys Inc. (AMED). All the three stocks hold a Zacks Rank #2 (Buy).
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