WAG is +1.65% today, ahead of the general market, after reporting February same-store sales. Although not glaringly solid on first look, WAG’ front end comps did notably improve over the last 2 months. On average, WAG front-end same store sales are down 1-6% over the last three months. Front-end same store sales declined -.6% in Feb versus -1% in January and -3.1 % in December. December and January suffered from calendar shifts, but more notably, weaker flu activity and a one-time merchandising blip that resulted in WAG stocking shelves with less seasonal items than competitors.
Longer-term investors may want to look at WAG given the potential for $1B in operating income savings by FY11. Nevertheless, no one will doubt that WAG has its work cut out for it, and most recently made yet another round of management changes as it rolls out its customer centric retailing initiatives. For those not familiar with CCR, this is WAGs store revitalization project, which will cover over 3000 unit stores by the Fall of this year. AT roughly $40K/store cost, I estimate this will eat $0.08 of EPS near-term but drive long term traffic building in stores. As a reminder, traffic potentially leads to higher basket size, which is critical to the bottom-line. WAG has itself said at investor conference that one extra front end item per customer annually is a +$1 to EPS.
Keep in mind WAG as well as RAD and CVS are facing easy y/y H1:09 comps so the coming months will have to show materially better same-store sales to keep the recovery theme intact amongst drugstore stocks.