Walgreen Co. saw monthly same-store sales fall again in March as a gain in front-end business wasn't enough to offset a double-digit decline in the pharmacy.


Walgreens, same-store sales, comparable-store sales, March, comp-store sales, pharmacy, front end, Express Scripts, contract dispute, Wade Miquelon, drug chain, drug store, prescriptions filled, comparable pharmacy sales, script count, pharmacy sales, year-to-date sales, basket size, customer traffic, Russell Redman, Mark Miller, William Blair & Co.
































































































































































































































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Walgreens' same-store sales drop in March

April 4th, 2012

DEERFIELD, Ill. – Walgreen Co. saw monthly same-store sales fall again in March as a gain in front-end business wasn't enough to offset a double-digit decline in the pharmacy.

Walgreens said Wednesday that comparable-store sales in March fell 6.8%, reflecting a 1.3 percentage point negative impact from calendar day shifts. The decrease exceeded declines of 4.6% in February and January.

The January 2012 comp-store sales result was the drug chain's first same-store sales decrease since October 2010 and continued a downward monthly trend from gains of 0.4% in December, 1.8% in November and 2.6% in October, the first month that the company provided figures on the impact of its contract dispute with Express Scripts Inc. As of Jan. 1, Walgreens no longer participates in the pharmacy benefit manager's network.

In the front end, same-store sales rose 1.2% for March. Basket size grew 2.2%, while customer traffic in comparable stores dipped 1%.

"We continued to see growth in our front-end business, and with Easter falling on April 8 this year we anticipate that much of our Easter sales will be reflected in our April results," executive vice president and chief financial officer Wade Miquelon said in a statement. Walgreens plans to report combined comp-store sales for March and April with its April sales results.

"In addition, our new advertising circular strategy has helped drive profitable sales," Miquelon stated, citing Walgreens' revamped weekly ad circular, which features a new look and feel for the print edition and a more interactive digital version offering hundreds of extra items.

Comparable pharmacy sales in March sank 11.1%, including negative impacts of 2.1 percentage points from calendar day shifts, 2.5 percentage points from generic drug introductions and 0.9 percentage point from a lower incidence of cough, cold and flu. Pharmacy sales accounted for 63.5% of total sales for the month.

Meanwhile, prescriptions filled at comparable stores dropped 11.4% in March. Negatively impacting script count during the month were calendar day shifts (2.1 percentage points) and the weak cough, cold and flu season (0.7 percentage point), Walgreens said.

For March, Walgreens reported negative impacts of 10.6 percentage points in comparable pharmacy sales and 10.7 percentage points in comparable-store prescriptions filled from no longer being part of the Express Scripts network. The company said prescriptions processed by Express Scripts represented 12.6% of the drug chain's prescriptions in March 2011.

Overall revenue in March was down 4.3% year over year to $6.29 billion, according to Walgreens. Sales edged up 2.5% in the front end but slipped 8.4% in the pharmacy during the month.

Analyst Mark Miller of William Blair & Co. said in a research note that the consensus analyst forecast for Walgreens in March was a 4% to 5% decline in same-store sales, with a 3% gain in the front end and an 8% to 9% decrease in the pharmacy.

Besides a smaller-than-estimated front-end sales lift from this year's earlier Easter, Miller explained, "Another contributing factor to the softer-than-expected front-end result is the shift in the advertising circular strategy, which now features fewer items and less aggressive promotions. It is difficult to estimate the front-end sales impact from the ad change, but management believes the ad change has been positive for the front-end gross profit trend."

And excluding the negative impacts of the Express Scripts dispute and calendar day shifts on prescription volume, Miller wrote, "the 1.3% same-store script increase was equal to that of February and slightly above January. Considering that the adverse flu impact on prescription volumes was slightly less in March than earlier in the season, we view the result as a modestly weaker trend (although not materially so)."

Walgreens said calendar year-to-date sales came in at $17.68 billion, down 1.8% from a year earlier. Fiscal 2012 year-to-date sales, covering the first seven months, increased 1.6% to $42.83 billion.

In March Walgreens opened eight stores, including one relocation. As of March 31, the chain operated 7,847 drug stores, 150 more than a year ago, including 19 stores acquired over the last 12 months.

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