Walgreen Company (WAG) Misses Q3 Estimates, Stock Tumbles

Pharmacy chain Walgreen Company (NYSE:WAG) missed analysts’ estimates, amid weak economy, lagging front-end sales and lower customer traffic.

Walgreen Company (WAG) Misses Q3 Estimates, Stock Tumbles

Walgreen Company (NYSE:WAG) posted $624 million of earnings, or 65 cents per share, in the fiscal third quarter ended May 31, from $537 million, or 62 cents per share, a year earlier.

The drugstore chain said sales in the quarter ended May 31 rose 3.2 percent to $18.3 billion, on the back of an 8.7 percent increase in prescription volume. The quarterly sales fell short of the analysts’ average estimate of $18.43 billion.

However, Walgreen Company (NYSE:WAG) also missed expectations on third quarter sales as customer traffic in stores open at least a year declined by 3.9 percent. The same-store sales grew by 0.4 percent.

The biggest U.S. drugstore chain said its third-quarter adjusted earnings rose 29.3 percent to $812 million, or 85 cents a share, thereby missing analysts’ expectations by 6 cents.

Walgreen Paid $80 Million in Civil Penalties

Earlier this month, Deerfield, Ill.-based Walgreen Company (NYSE:WAG) agreed to pay $80 million in civil penalties to resolve allegations it violated federal rules governing the distribution of prescription painkillers. It set aside $25 million in the third quarter for the penalties, with earnings reduced by 4 cents to 6 cents per share.

During March, AmerisourceBergen Corp. (NYSE:ABC), a drug distributor, have entered into an agreement with Walgreen Company (NYSE:WAG), the largest U.S. drugstore chain and Alliance Boots which would deliver $28 billion in incremental revenue in fiscal 2014 and give rights to Walgreen and Boots to acquire up to 23 percent in AmerisourceBergen.

Walgreen Company (NYSE:WAG) took charges in the quarter related to its acquisition of AmerisourceBergen, a settlement with the Drug Enforcement Division and taxes related to its Alliance Boots business.

According to Credit Suisse analyst Edward J. Kelly, Walgreen Company (NYSE:WAG) and other drugstores have been helped for several quarters by an influx of generic drugs, which boost profitability because they come with a wider margin between the cost for the pharmacy to purchase the drugs and the reimbursement it receives.

Enhanced Customer Traffic and Front-end Sales are Priorities

CEO Greg Wasson said in a statement, “Our front-end sales are still not up to our expectations, and while the economy remains challenging, increasing customer traffic and front-end sales are our near-term priorities with a focus on pricing and promotion and the leveraging of our Balance Rewards program, which now has 75 million members”

The CEO also indicated results suffered particularly at stores in low-income neighborhoods. The drug chain major is revamping product assortments and tweaking its pricing and promotional strategies to stem the declining performance.

About the Author

Mani is a Senior Financial Consultant. He has worked in Senior Management role in large banking, financial and information technology organizations. He has provided solutions for major banking and securities firms across the globe in the area of retail, corporate and investment banking. He holds MBA (Finance) and Professional Management Accounting Qualifications. His hobbies are tracking global financial developments and watching sports