Solid gains in both the front end and the pharmacy fueled another month of same-store sales growth for Walgreen Co. in September.


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Walgreens' same-store sales rise in September

October 5th, 2011

DEERFIELD, Ill. – Solid gains in both the front end and the pharmacy fueled another month of same-store sales growth for Walgreen Co. in September.

Walgreens said Wednesday that comparable-store sales in September climbed 3.1% versus a year earlier, with calendar day shifts (one extra Friday and one fewer Wednesday compared with last year) shaving comp-store sales by 0.1 percentage point.

The increase fell short of the robust 5.6% same-store sales gain in August but continued the drug chain's strong comp-store sales performance in 2011. Through September, the retailer's monthly same-store sales growth has averaged 4.2%.

In the front end, comp-store sales were up 3.4% in September. Customer traffic in comparable stores edged up 0.2%, and comparable basket size increased 3.2%.

Pharmacy same-store sales in September rose 3%. Walgreens noted that pharmacy comp-store results were negatively impacted by 0.1 percentage point from calendar day shifts; 1.7 percentage points from generic drug introductions; 1.1 percentage points from lower incidence of cough, cold and flu; and 0.3 percentage point because of fewer flu shots.

Prescriptions filled at comparable stores increased 1.9% in September, reflecting negative impacts of 0.1 percentage point from calendar day shifts, 0.7 percentage point from lower incidence of flu and 0.7 percentage point due to fewer flu shots administered.

Walgreens reported that flu shots administered at pharmacies and clinics season-to-date totaled almost 1.9 million, down from about 2.25 million a year ago.

"While we once again are seeing a slower start to the flu season, we have seen increased demand for flu shots in recent weeks," Kermit Crawford, president of the pharmacy, health and wellness division at Walgreens, said in a statement.

Analyst Mark Miller of William Blair & Co. pointed to the weak start to the flu season as a key drag on Walgreens' September same-store sales. The retailer's 3.1% comp-store gain for the month fell short of William Blair's 4.3% projection and the 4.6% consensus analyst estimate, he noted.

"Management indicated that both flu-related scripts and flu shots were a 70-basis-point drag on the comp — or 140 basis points in total," Miller wrote in a research note Wednesday on Walgreens' September sales. "Stripping out the flu-related impact (and adding back 0.1% for a calendar shift), September's underlying pharmacy comp of 4.5% is roughly in line with the prior six-month average of 4.3%."

Walgreens' 3.4% front-end same-store sales gain for September also was below William Blair's 4.5% estimate and the 4.3% consensus forecast, according to Miller, who noted that the growth in basket size was diluted by a drop-off in customer traffic. "With roughly a quarter of Walgreens' stores in lower-income earning areas, we suspect the sharp year-to-year decline in unemployment benefits could be having an adverse impact on those stores," he stated.

Total September sales at Walgreens came in at $5.95 billion, up 5.4% from $5.65 billion a year earlier. Revenue rose 5.1% in the front end and 4.6% in the pharmacy.

Miller noted that sales of consumables continue to outperform overall front-end sales. "Beer and wine added 43 basis points to comps in September. While back-to-school is exhibiting positive year-to-year growth, it came in softer than expected and was weaker than the overall front end," he wrote in his analysis. "However, there should be minimal markdown risk from the back-to-school category in the fiscal first quarter (November), as these items are sold throughout the year.

"The early read on Halloween appears positive based on solid demand for bagged candy, according to management," he added.

Calendar year-to-date sales advanced 7.2% to $53.99 billion from $50.36 billion in the prior-year period, according to Walgreens. Fiscal year-to-date sales are the same as September's sales, since Walgreens' fiscal year began Sept. 1.

Walgreens said it opened 16 stores in September, including two relocations, and acquired four stores. As of Sept. 30, the retailer operated 7,779 drug stores, 199 more than a year ago, including 33 stores acquired over the last 12 months.

*Editor's Note: Article updated with analyst comment.

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