Walgreen (WAG) reported critical January 2013 sales figures this morning that indicate a +6.3% year-over-year growth number for the month (link to report here). The favorable surprise figure represents the first Y/Y growth in the report in nearly a year and the largest since August 2011.
Results from the highly anticipated report exceeded our optimistic 4.0% growth estimate and signify increased traffic related to the ongoing U.S. influenza epidemic and a return of customers lost to Rite Aid (RAD) related to the 2011 Express Scripts (ESRX) contracting issue.
The increased focus on the report comes of investors attempt to gauge the ability of Walgreen's to recapture customers who had migrated to Rite Aid during the contentious Express Scripts contract dispute that ended in mid-July of 2012. We feel that the report indicates that the recapture rate of lost customers continues at a low single digit rate though the number may be accelerating to a mid-single digit rate with existing customer maintaining their alliance to the firm.
Support for these points and other positive takeaways from the report include:
- The January 2013 +6.3% reported growth marks the first positive y/y growth since the February 2012 (+1.5%) reported figure.
- The Y/Y gain represents the largest reported growth number since August 2011 (+7.8%).
- Prescriptions filled rose 13.6% on a comparable store basis with the highly telling front end number increasing 1.3% and falling 0.4% on a comparable store basis (up from -2.3% in December).
- Customer traffic with the corresponding basket size increasing 2.4% (vs 1.7% in December) though same store customer traffic declined by 2.8% (an increase from the -4.0% reported in the December 2012 report).
The data compares favorably to the monthly report issued by Rite Aid this morning that signified a 0.3% growth with same-store sales posting a +0.1% number (link here). Of further concern to Rite Aid investors is the 0.5% decline in drugstore sales.
Overall we are viewing this report in a highly favorable light for Walgreen and believe that the company is well positioned to expand on its sales base with and continue to recapture customers previously lost Rite Aid. We will continue to monitor the front end and comparable store metrics to ensure follow through but believe that the company's domestic strategy is addressing all business needs.