Generics And Calendar Effects Weigh On Walgreen’s April Sales

by Trefis Team
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WAG
Walgreen Co.
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Walgreen (NYSE:WAG) reported 3.8% higher sales in April 2013 as compared to the previous year same period on May 3. Total revenues for the month stood at $5.98 billion with pharmacy sales contributing 64.5% while front-end sales accounted for the rest. On a comparable store basis, the sales were up 1.2%.

The growth in sales has been moderated by the higher generic dispensing rate as a lot of branded drugs are losing their patents. The rising sales of generic drugs is a double edged sword as it leads to a slower growth on top line but better profit margins since generic drugs are more profitable than their branded counterparts. Generic drug introductions in the last 12 months negatively impacted total comparable sales by 2.6%.

Walgreen is a dominant player in the US pharmacy retail segment with competitors like CVS Caremark (NYSE:CVS) and Rite Aid(NYSE:RAD).

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Front end sales decline as Easter holiday shifts

Front end sales, which includes all products except medicines, declined by 2.9% in April year-on-year as Easter occurred in March instead of the usual April. On a comparable store basis, front end sales declined by 4.3% as newer stores helped in containing this decline. Walgreen opened about 240 new stores in the last one year as the current store count stands at 8550.

The customer traffic in comparable stores reduced by 5.9% while the average basket size increased by about 1.6% helped by the phenomenal success of the company’s Balance Rewards Loyalty Program. Walgreen currently has about 68 million active members in its customer loyalty program which helps them to earn points on repetitive purchases and in turn provides them with discounts if they redeem those points.

Number of prescriptions filled increase along with higher pharmacy sales

The number of Americans covered under the Medicare Part D Program has been on a rise leading to a 9.7% rise in the total number of prescriptions filled at various Walgreen stores. This rise is also partly due to the fact that this April had one extra Tuesday and one less Sunday as compared to the previous year. Additionally, the percentage of former Express Scripts customers returning to Walgreen’s pharmacies continued to increase in April after the dispute has resolved between the two giants.

Total pharmacy sales increased by 7.3% while on a comparable store basis it grew by 4.7% supported by the extra weekday and a bad cough and flu season. The inclusion of generics in the prescription negatively impacted the comparable store pharmacy sales by 4.1%.

Trefis price estimate for Walgreen stands at $42 which is at a 12% discount to the current market price.

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