Drug Sales, Store Closures, and Walgreen’s Second Quarter

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It’s not all sunshine and happiness for Walgreen Co. (NYSE:WAG), but the drugstore operator did seem to wake up on the right side of the bed on Tuesday morning. Shares climbed as much as 3 percent in early trading after the company reported decent second-quarter earnings — let’s call them mixed, leaning toward optimistic.

Second-quarter sales increased 5.1 percent on the year to $19.6 billion, effectively in line with the mean analyst estimate. For the first half of the year, sales were up 5.5 percent at $37.9 billion. Comparable store sales increased 4.3 percent in the second quarter, but customer traffic declined 1.4 percent. A 3.4 percent increase in basket size is consistent with the idea that although there may be less foot traffic through Walgreen stores, those customers are purchasing more. Part of the catalyst for bigger baskets is the successful ongoing rollout of the Balance Rewards loyalty program, which had 100 million enrollees and 80 million active members in February.

With Walgreen, it’s important to understand that more than half of revenue (62.2 percent in the second quarter) comes from the sale of prescription medicine, so many investors focus primarily on this segment. Strength in second-quarter prescription sales helped offset some weakness elsewhere, as total medicine sales increased 7 percent on the year while comparable-store prescription sales increased 5.8 percent. Walgreen filled a total of 214 million prescriptions in the second quarter, and the company claimed a 19 percent share of the prescription retail market, up 20 basis points on the year.

“Walgreens also saw strong growth in prescriptions filled for Medicare Part D patients, which increased 16 percent in the second quarter compared with last year’s quarter, while the company’s Part D market share increased 0.8 percentage point in February compared with the same month a year ago,” the company reported.

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