Walgreen's Strong March Is Business As Usual

| About: Walgreens Boots (WBA)
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Walgreen Company (WAG) reported strong March 2013 sales of $6.2 billion marking a 2.3% increase over March 2012 results earlier this morning. The increase reflects a continued return of Express Scripts (NASDAQ:ESRX) customers and the benefit of the Easter holiday falling in March for 2013.

The March report is of considerable interest given the effects of the 2012 leap year and weather related business interruptions on the February reported results.

March year-over-year sales growth of 2.3% outpaced the normalized 1.5% reported last month and represents a $140 million increase over prior year results. The report also marked a continuance of the monthly Y/Y sales increase that initiated in January of this year. While March results benefited from the favorable impact of Easter sales, several points of interest were observed in the report.

  • March results continued to demonstrate a decline in total customer traffic. The March figure of -1.3% represents the 18th consecutive month of decline in this metric. However, the March number is the best reported result since the -1.0% recorded in March 2012 and outpaced our -2.2% projection by 90bp.
  • The increase in customer basket size in March also comes as a moderate surprise. The 5.5% increase exceeded our fairly aggressive 3.8% projection for the month. The customer basket increase also reflects the 33rd consecutive increase in the metric and the largest increase since Walgreen began providing the figure in July 2010.
  • Front end sales rose 5.4% and 4.2% on a same-store basis respectively and eclipsed our 2.4% March estimate.
  • Pharmacy sales posted a modest 0.4% increase and declined by 1.5% on a same-store basis.

In reviewing the March period, we're impressed by the expansion in overall customer basket size and the continued traffic decline was not as aggressive as we had anticipated. Conversely, the soft March pharmacy sales were disappointing and the primary source of the shortfall to our monthly revenue projection.

For April we are projecting total revenues of $5.9 billion, or a 2.3% year-over-year increase. We believe that we will again see soft traffic patterns and some erosion in the customer basket that we are estimating to total -1.8% and 2.6% respectively.

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