We expect the largest drugstore chain in the U.S, Walgreen (NYSE:WAG) to turnaround a decline in sales and report a marginal y-o-y growth in January sales as it benefits from the current flu season. The U.S. Centers for Disease Control and Prevention (CDC) has already stated that the current season has reached epidemic proportions.  The severity of the current flu season can be gauged from the fact that drug-makers are reporting a shortage of the flu vaccines and drugs. 
While the drug retailers are expected to benefit as a whole, the impact on Walgreen’s same store sales is expected to be greater on account of its larger footprint and Express Scripts customers moving their prescriptions back to Walgreen. Walgreen’s sales have been suffering from a decline over the past year as a result of the loss of Express Scripts prescriptions to competitors like CVS Caremark (NYSE:CVS) and Rite Aid (NYSE:RAD) among others and the introduction of generics.
Walgreen has the largest footprint among all drugstores in the U.S. and operates at about 8,500 locations. The wide footprint combined with competitors reportedly running out of flu shots and drugs such as Tamiflu leads us to expect that the impact of flu on the same store sales in January 2013 will be larger than the 1.4 percentage points in December 2012.   The growth in January sales may appear to be larger than actual as it will be compared to those in January 2012, when the impact of the dispute with Express Scripts was first felt and sales were also negatively impacted by lower incidences of flu.  Express Scripts has since patched up with Walgreen and a substantial number of customers who had left Walgreen for other drug retailers have returned.
Historically, the highest activity due to flu has been recorded in the month of February.  Hence, we expect the benefits of the flu season to roll over and be more prominent in the February sales. The availability of flu medications at Walgreen’s can aid its efforts of regaining lost Express Scripts prescriptions from competitors who are struggling with inadequate stocks. We expect the severe flu season to have a positive impact on sales in the quarter ending February 2013.
We have a $38 Trefis price estimate for Walgreen which is 6% below the current market price.
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- Flu reaches epidemic level in U.S., says CDC, Reuters, January 2013 [↩]
- Drugmakers report U.S. shortages of flu vaccine, Tamiflu, Reuters, January 2013 [↩]
- Walgreens December Sales Decrease 4.0 Percent, Walgreen, January 2013 [↩]
- CVS, Rite Aid See Flu Shot Shortages Amid Demand Surge, Bloomberg, January 2013 [↩]
- Walgreens January Sales Decrease 2.3 Percent, Walgreen, February 2013 [↩]
- The Flu Season, CDC, January 2013 [↩]