Comparable-store sales at Walgreen Co. remained on the downside in December, as calendar day shifts and introductions of lower-price generic drugs impacted results.

Walgreens, comparable-store sales, same-store sales, December, comp-store sales, pharmacy, front end, prescription count, prescriptions filled, comparable pharmacy sales, generic drugs, flu shots, Balance Rewards, pharmacy sales, 2012 sales, Mark Miller, William Blair & Company, Express Scripts

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December comp-store sales decrease at Walgreens

January 4th, 2013

DEERFIELD, Ill. – Comparable-store sales at Walgreen Co. remained on the downside in December, as calendar day shifts and introductions of lower-price generic drugs impacted results.

Walgreens said Friday that December same-store sales fell 6.1% from a year earlier. Calendar day shifts accounted for 1.3 percentage points and new generics 3.2 percentage points of the decline.

The December same-store performance compared with decreases of 6.2% in November and 5.9% in October.

It has been a year since Walgreens last reported a monthly comp-store sales increase; the drug chain posted a 0.4% gain in December 2011. The following month, January 2012, the retailer had a 4.6% same-store sales decline, which had marked its first monthly comp-store decrease since October 2010.

In the front end for December 2012, same-store sales were down 2.3 percent. Customer traffic in comparable stores fell 4%, although basket size grew 1.7%.

Comparable pharmacy sales dropped 8.9% in December and, on a day-fall adjusted (DFA) basis, decreased 6.6%. Walgreens noted that calendar day shifts negatively impacted pharmacy sales in comparable stores by 2.3 percentage points. New generics negatively impacted DFA same-store pharmacy sales by 5.7 percentage points.

Prescription count at comparable stores decreased by 2.3% in December but was flat on a DFA basis. Walgreens pointed out that December 2012 had an extra Sunday and Monday and one fewer Thursday and Friday versus a year ago, negatively impacting prescriptions filled in comparable stores by 2.3 percentage points. DFA prescriptions filled at comparable stores got lifts of 1.4 percentage points from a higher incidence of flu in December and 0.7 percentage point from more flu shots during the month.

Flu shots administered at pharmacies and clinics season-to-date totaled about 5.5 million, compared with 5.3 million last year, Walgreens said.

Overall sales in December were $6.71 billion, down 4% from $6.99 billion a year earlier. Revenue fell 1.3% in the front end and 4.9% in the pharmacy. Pharmacy sales represented 56.7% of total sales for the month.

Mark Miller, an analyst for William Blair & Co., noted that Walgreens' December performance was better than it seemed.

"In our estimation, Walgreens' total underlying comp-store sales increased roughly 1% in December. The headline number does not adjust for a number of items that skew the underlying fundamental trend, and the reported 6.1% total comp-store sales decline appears far worse," Miller wrote in a research note Friday. "The sequential deceleration is driven by less of an impact from generics as well as softness in the front end (which represents a greater percentage of sales in December)."

What's more, Miller reported, Walgreens has a bead on its recovery of lost pharmacy business from the contract dispute with pharmacy benefit manager Express Scripts Inc.

"Based on the sequential improvement in same-store script trends, we estimate Walgreens has recaptured roughly 40% of prescriptions since rejoining Express Scripts' broadest network on Sept. 15," he explained. "Walgreens previously indicated it expects to get 'most' of the scripts back within 12 months, and we continue to believe results thus far are tracking in line with this plan. The recapture rate remains one of the most important swing factors that will determine whether the company can meet or exceed consensus expectations."

Walgreens said calendar 2012 sales came in at $70.51 billion, a decrease of 3.7% from $73.19 billion in 2011. Sales for the first four months of fiscal 2013 were $24.03 billion, down 4.4% from the prior-year period.

Enrollments for Walgreens' Balance Rewards loyalty program, launched in September, totaled almost 49 million through December, up 29% from 38 million through the previous month.

The chain opened seven stores, acquired one store and closed four stores in December. As of Dec. 31, the retailer had 8,061 drug stores, 243 more than a year ago, including 107 net stores acquired over the last 12 months.

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