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Walgreens reports April comp-store sales decline
May 3rd, 2012
DEERFIELD, Ill. – Decreased results in the pharmacy and the front end pulled down same-store sales for Walgreen Co. in April.
Walgreens said Thursday that April comparable-store sales fell 6.4% year over year, despite a positive impact of 0.4 percentage point from calendar day shifts (one extra Sunday and Monday and one fewer Friday and Saturday versus a year ago).
The April result was a slight improvement from a 6.8% comp-store sales drop in March yet continued monthly same-store sales decreases for Walgreens since the start of 2012, including declines of 4.6% in February and January.
The drug chain has seen a downward trend in monthly comp-store results since October, the first month that the company provided figures on the effect of its contract impasse with Express Scripts Inc. As of Jan. 1, Walgreens no longer participates in the pharmacy benefit manager's network.
For April, same-store sales in the front end were down 2.2% from a year ago. Walgreens said customer traffic in comparable stores fell 3% and basket size grew 0.8% during the month.
Wade Miquelon, Walgreens CFO: "We've seen month-to-month improvement in comparable prescriptions filled on a calendar-adjusted basis."
Comparable pharmacy sales sank 8.9% in April, in spite of a 0.6 percentage point lift from calendar day shifts. Walgreens noted that same-store pharmacy sales were negatively impacted by 3.4 percentage points from generic drug introductions; 0.5 percentage point from lower incidence of cough, cold and flu; and 10.7 percentage points from not being in the Express Scripts network.
The prescription count at comparable stores decreased 7.8 percent in April, reflecting a positive impact of 0.6 percentage point from calendar day shifts. Walgreens said that on a calendar-adjusted basis, prescriptions filled at comparable stores improved for the third straight month, including a 0.9-percentage-point improvement in April compared with March.
Lower incidence of flu negatively impacted prescription filled in comparable stores during April by 0.2 percentage point. According to Walgreens, the negative impact on comparable-store prescription count from the chain no longer being part of the Express Scripts network was 10.7 percentage points. Prescriptions processed by Express Scripts comprised 12.6% of Walgreens prescriptions in April 2011, the company said.
"We've seen month-to-month improvement in comparable prescriptions filled on a calendar-adjusted basis each of the last three months, while our front-end business reflects our continued focus on a more relevant product mix, supported by a new advertising circular strategy that launched in February with continued pricing and promotion discipline," Wade Miquelon, executive vice president and chief financial officer at Walgreens, said in a statement.
Comp-store sales for the March/April period, which includes the Easter holiday season, were down 6.7 percent. In the front end, same-store sales dipped 0.5% in the March/April period. Customer traffic in comparable stores fell 2.3% and basket size grew 1.8% during the two months, Walgreens said.
Overall April sales for Walgreens declined 3.7% to $5.78 billion from $6 billion a year earlier, reflecting revenue decreases of 0.5% in the front end and 6.3% in the pharmacy. The retailer said pharmacy sales accounted for 62.6% of total revenue for the month. Total sales for March/April period fell 4% from the same two months in 2011.
Calendar year-to-date sales came in at $23.46 billion, down 2.2% from $24 billion in the prior-year period. Fiscal 2012 sales for the first eight months edged up 1% to $48.61 billion, the company said.
Analyst Mark Miller of William Blair & Co. wrote in a research note Thursday that Walgreens has "many moving pieces in the earnings equation at present."
Assessing the drug chain's April sales figures, Miller said, "The negative was softer‐than‐ expected front‐end sales, while the positives were potentially stronger front‐end gross margins and rising generic penetration in the pharmacy." He reported that Walgreens' management cited cough/cold, paper, household and photo as the weakest front‐end categories during the month.
Miller described Walgreens' ad circular strategy change as "ill-timed."
"We have tracked Walgreens' weekly ad circulars since 2003, evaluating price changes on more than 100 featured items each quarter. Based on that field research, we find that the prices for identical items in the ad circular are about 12% higher year over year thus far in the fiscal third quarter. We also found that ad items featured in the fiscal second quarter were up 15%, potentially affected by the shift in approach in February," he wrote in his report. "It remains to be seen how much Walgreens' front‐end margins may improve in the May quarter as a result of the change; however, we believe there is a basis to believe that the company can sustain or improve upon the front‐end gross margin improvement that was achieved last quarter."
Walgreens did see improvement on the pharmacy side during April, according to Miller. "Pharmacy trends are better. The calendar‐adjusted script comp of -8.3% was notably stronger than the -9.5% decline in prior months. We estimate about half of the improvement may be attributable to a smaller drag of flu this month," he explained. "The negative impact of no longer being part of the Express Scripts network remains at 10.7% (implying 15% retention, same as prior months). Thus, the underlying same-store script increase (same-calendar, adjusted for Express Scripts) showed good improvement in April."
Walgreens said it opened seven stores in April, including one relocation, and acquired two stores. As of April 30, the chain operated 7,855 drug stores, 146 more than a year ago, including 21 stores acquired during the last 12 months.
*Editor's Note: Article updated with analyst comment.