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Tickers in this Article: WAG, CVS, RAD, WMT, TGT
Drugstore giant Walgreens (NYSE:WAG) had a strong fiscal 2010 first quarter aided by the increased demand for flu shots. Sales were up 9.5% to a record $16.4 billion while the company racked up profits of 49 cents per diluted share, a near 20% increase year over year. Even more impressive, Walgreens generated $1.2 billion in cash flow from operations, more than triple the year-ago quarter.

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A One-Time Shot?
While the company had an outstanding quarter, the performance was no doubt boosted by the arrival of an early flu season. People flocked to drugstores to buy over-the-counter flu remedies as well as to get their flu shots. Prescription drugs account for two-thirds of Walgreens' sales, and that segment saw sales jump 10% in the quarter. The company's flu shot campaign was launched in September of this year, a month earlier than last year, and with swine flu concerns spreading nationwide, Walgreens was poised to benefit, as were other neighborhood drugstores chains CVS (NYSE:CVS) and Rite-Aid (NYSE:RAD). The company did indicate that November holiday sales were restricted due to continued consumer concerns over the economy. (For related reading, check out Profiting In A Post-Recession Economy.)

Going Forward
It's clear that the pharmacy business is the major draw for the drugstore chains that use them to drive store traffic in order to help sell consumer goods. For many, this added convenience is a big plus. Among the drugstores, Walgreens looks like the clear winner. Its gross margins are some of the highest among its competitors, and its focus on efficiency led to significant cash flow generation in the quarter. But nowadays, the drugstores are also competing with the likes of Wal-Mart (NYSE:WMT) and Target (NYSE:TGT), which offer the same level of prescription drug care along with many other goods and services. (For more, see Spotting Cash Cows.)

Still Convenience
Walgreens delivered a solid quarter, and continued efficiency should bode well for the company going forward. However, the threat of competition from the superstores is a real one that will only become more significant over time. Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

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