Walgreens (WAG) this morning provided a key update on its February 2013 sales performance. Though the total period figure reflects a 2.2% year-over-year decline in sales to $5.75 billion, the normalized figure indicates a 1.5% increase.
The report was of heightened interest largely due to the strong January sales report. Walgreen's January performance was partially attributable to the increased customer traffic resulting from the influenza outbreak coupled with returning Express Scripts (ESRX) customers from Rite Aid (RAD) as theorized in my report, "Walgreen's January Sales Explode but Rite Aid Flat."
Underlying the favorable results, we believe that the rate of returning Express Script customers has accelerated in recent months to a mid-single digit rate and the company marginally benefited from the effects of the current influenza outbreak that has begun to soften. Key drivers for period included;
- The normalized +1.5% growth represents the first sequential monthly year-over-year sales increase since the Express Scripts interruption (February 2012 was +6.3%) and exceed our 1.2% estimate.
- Prescription volume remained strong as represented by the reported 6.5% growth (down from 13.6% in January) and pharmacy sales rose 2.0% on an period adjusted basis (down from 8.7% in January).
- One of the more encouraging data points is reflected in the company's front end sales that declined by 1.4% on an as-reported basis but increased by 1.7% when the additional selling day is excluded.
We continue to harbor some concern over Walgreen's customer traffic volume levels that again demonstrated a year-over-year decline. The February reported traffic figure was -4.9%. The trend has not demonstrated the break that we had anticipated with the January (-2.8%) and December (-4.0%) respectively illustrating continued weakness.
Walgreen has performed notably in partially offsetting the declining traffic issue by continually expanding the customer basket size. The reported February basket size increased 3.5%, a full percentage above our 2.5% estimate and above the 2.4% reported in January and the 1.7% December figure.
In looking at March, we are anticipating a 2.8% year-over-year increase in total sales to $6.47 billion. The figure reflects a March 31 Easter in 2013 as opposed to 2012 when Easter was on April 9. We have forecasted that this will also have a positive effect on front end sales (+2.4%) and customer traffic (-2.2%) as well as basket size (+3.8%) respectively.
We are expecting Rite Aid to release its February sales data later today.