Walgreen Co. in July reported its smallest same-store sales increase in months despite continuing a streak of gains stretching back to last year.

Walgreens, same-store sales, July, comparable-store sales, comp-store sales, pharmacy, front end, drug store, prescriptions filled, Russell Redman, customer traffic, basket size, Mark Miller, William Blair & Co.

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Walgreens' same-store sales growth slows in July

August 3rd, 2011

DEERFIELD, Ill. – Walgreen Co. in July reported its smallest same-store sales increase in months despite continuing a streak of gains stretching back to last year.

Walgreens said on Wednesday that comparable-store sales in July rose 2.7%, down from robust increases of 4.8% in June and 5.6% in May. The drug store chain hadn't seen a monthly comp-store gain of less than 3% since December, when it posted a 2.8% gain.

According to the company, calendar day shifts negatively impacted same-store results by 1.4 percentage points in July, which had an extra Sunday and one fewer Thursday compared with a year ago.

A strong front-end performance fueled the gain in July. Same-store sales in the front end climbed 4.8% for the month, slightly higher than the 4.7% growth in June. Walgreens noted that customer traffic in comparable stores was up 1.4% in July, while basket size increased 3.4%.

Pharmacy same-store results, however, dropped off noticeably in July versus the previous month. Comparable pharmacy sales inched up 1.5% for the month, down from 4.9% in June. According to Walgreens, pharmacy same-store sales in July reflected negative impacts of 2.2 percentage points from calendar day shifts and 1.9 percentage points from generic drug introductions.

Growth in prescriptions filled at comparable stores also tailed off, edging up just 1.3% in July after a 5% rise in June. Walgreens said prescriptions filled in comparable stores in July included a negative impact of 2.2 percentage points from calendar day shifts.

"Front-end comps rose 4.8%, slightly ahead of our 4.5% estimate and comfortably above the 3.8% consensus projection," analyst Mark Miller of William Blair & Co. wrote in a research note on Walgreens' July sales. "Sales trends in the front of the store continued to improve in July, despite evidence that the U.S. economy has been slowing in recent months. Management indicated that sales for high-margin summer-seasonal items were strong, helped in part by July's hot weather. However, management also believes better in-stock levels relative to last July also boosted seasonal sales."

Miller noted that the calendar day shift's adverse impact on pharmacy same-store results was more than expected.

"Reported pharmacy comps increased 1.5%, below our 3.0% forecast and the 2.9% consensus estimate. However, the adverse calendar shift totaled 220 basis points, above our 160-basis-point estimate. Excluding the calendar shift, Walgreens' pharmacy comps rose 2.1%," he explained in his analysis, released Wednesday. "Excluding the calendar impact, the underlying trend in Walgreens' pharmacy appears solid, in our view. While the trend moderated from June, the absolute comp growth in July remains above the level of comp growth reported in 2010 and in the first half of 2011."

Walgreens' total revenue in July came in at $5.82 billion, up 4.7% from $5.56 billion a year earlier. For July, sales increased 6.8% in the front end and 2.7% in the pharmacy.

The retailer reported that calendar year-to-date sales rose 7.3% year over year to $41.93 billion, while fiscal 2011 year-to-date sales (11 months) increased 7% to $66.07 billion.

Walgreens said it opened 13 stores in July, including three relocations, and closed one store for a net increase of nine stores in the month. As of July 31, the chain operated 7,742 drug stores, 198 more than a year ago, including 29 stores acquired over the last 12 months.

*Editor's Note: Analyst comment updated and expanded.