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Walgreen Fills Rx For A Healthy Quarter
Walgreen Co. (NYSE:WAG) recorded a strong increase in profits for its fourth quarter in the face of a weak economy. Revenue and same store sales both rose for the drugstore chain as prescription drug sales increased. Non-drug items also sold better due to pricing and promotions. Same store sales grew modestly. The market boosted the stock, on the company's beat of expectations.
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Drugs, Flu Shots and Food
While the staple of drugstore trade, prescription drug sales, increased during the quarter, Walgreen also cited greater profitability in food and other non-drug items. Walgreen continues to streamline its product mix and increase availability of alcohol sales.
Beyond the promotions for the non-drug items, an early start to the flu shot season suggested flu shots might be a larger revenue producer down the line for the company. The company hoped to sell 15 million flu shots compared to seven million it sold last year. (What people buy and where they shop can provide valuable information about the economy, read Using Consumer Spending As A Market Indicator.)
Fourth Quarter and Fiscal Year Results
For the fourth quarter, Walgreen revenue increased to $16.87 from $15.7 billion the same quarter last year. Net income was $470 million or 49 cents a share, compared to $436 million or 44 cents a share. Same store sales rose 1.5%. Margins grew to 28.4% from 27.7% a year ago due to cost-cutting. For its fiscal year, Walgreen's revenue was $67.42 billion compared to $63.34 billion last fiscal year, with net income of $2.09 billion or $2.12 per share, compared to $2.01 billion last year or $2.02 per share.
Drugstores A Difficult Space
Walgreen and the other major drugstore chains, CVS Caremark (NYSE:CVS) and Rite Aid (NYSE:RAD) have been challenged by both the retail downturn and uncertainties about health care programs. Rite Aid posted another losing quarter. CVS, on the other hand, continues to strengthen its trade in the pharmacy benefit management area, while Walgreen's results after a lackluster third quarter encouraged investors.
In addition to each other, Walgreen and the other chains have to compete with grocers such as Kroger (NYSE:KR), Safeway (NYSE:SWY) and SuperValu (NYSE:SVU) on pharmacy sales. While this is not the major segment of the grocers' businesses, an outlet such as Kroger which is particularly focused on price can pick away at some share of the lucrative prescription drug market. In the current tight competitive landscape and weak economy, it makes sense that Walgreen is slowing down its store expansion. Though its earnings are encouraging, revenue growth will remain "muted," according to Jeff Jonas, analyst at Gabelli & Co.
Is Walgreen A Buy?
Walgreen stock rose nearly 12% after its earnings release, yet the stock still trades in the middle of its 52-week range.The stock trades at a multiple just over 16 but under 14 for forward earnings. Still, it doesn't look like this quarter will be a prelude to earnings growth taking off again; if the stock falls to bargain levels again, though, value and growth investors should take a serious look at it. This is still a strong company, a leader in a dwindling field, and when the economy gets better it should once again resume strong growth.
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IN PICTURES: 9 Simple Investing Ratios You Need To Know
Drugs, Flu Shots and Food
While the staple of drugstore trade, prescription drug sales, increased during the quarter, Walgreen also cited greater profitability in food and other non-drug items. Walgreen continues to streamline its product mix and increase availability of alcohol sales.
Beyond the promotions for the non-drug items, an early start to the flu shot season suggested flu shots might be a larger revenue producer down the line for the company. The company hoped to sell 15 million flu shots compared to seven million it sold last year. (What people buy and where they shop can provide valuable information about the economy, read Using Consumer Spending As A Market Indicator.)
For the fourth quarter, Walgreen revenue increased to $16.87 from $15.7 billion the same quarter last year. Net income was $470 million or 49 cents a share, compared to $436 million or 44 cents a share. Same store sales rose 1.5%. Margins grew to 28.4% from 27.7% a year ago due to cost-cutting. For its fiscal year, Walgreen's revenue was $67.42 billion compared to $63.34 billion last fiscal year, with net income of $2.09 billion or $2.12 per share, compared to $2.01 billion last year or $2.02 per share.
Drugstores A Difficult Space
Walgreen and the other major drugstore chains, CVS Caremark (NYSE:CVS) and Rite Aid (NYSE:RAD) have been challenged by both the retail downturn and uncertainties about health care programs. Rite Aid posted another losing quarter. CVS, on the other hand, continues to strengthen its trade in the pharmacy benefit management area, while Walgreen's results after a lackluster third quarter encouraged investors.
In addition to each other, Walgreen and the other chains have to compete with grocers such as Kroger (NYSE:KR), Safeway (NYSE:SWY) and SuperValu (NYSE:SVU) on pharmacy sales. While this is not the major segment of the grocers' businesses, an outlet such as Kroger which is particularly focused on price can pick away at some share of the lucrative prescription drug market. In the current tight competitive landscape and weak economy, it makes sense that Walgreen is slowing down its store expansion. Though its earnings are encouraging, revenue growth will remain "muted," according to Jeff Jonas, analyst at Gabelli & Co.
Is Walgreen A Buy?
Walgreen stock rose nearly 12% after its earnings release, yet the stock still trades in the middle of its 52-week range.The stock trades at a multiple just over 16 but under 14 for forward earnings. Still, it doesn't look like this quarter will be a prelude to earnings growth taking off again; if the stock falls to bargain levels again, though, value and growth investors should take a serious look at it. This is still a strong company, a leader in a dwindling field, and when the economy gets better it should once again resume strong growth.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Greg Sushinsky
Greg Sushinsky is a passionate independent investor, who has done his own research, analysis and investing for 20 years. One of his earliest investing memories was when he first saved and bought U.S. Savings Bonds with his own money as a small child. From there, he studied investing on his own and made small stock purchases as he grew as an investor.
Sushinsky still follows the markets, studies and reads widely in financial literature, and has written over 75 articles on investing. He is also a professional editor, whose work is published extensively in large-circulation magazines, digests and across the internet. In other pursuits, Sushinsky writes fiction and has a university degree in philosophy. To see more of Sushinsky's literary work, see http://writing.gregsushinsky.com/.
Sushinsky still follows the markets, studies and reads widely in financial literature, and has written over 75 articles on investing. He is also a professional editor, whose work is published extensively in large-circulation magazines, digests and across the internet. In other pursuits, Sushinsky writes fiction and has a university degree in philosophy. To see more of Sushinsky's literary work, see http://writing.gregsushinsky.com/.
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