Walgreens Front End Comps Gain But Earnings Miss Estimate

For the third quarter ended May 31, Walgreen Co. posted adjusted net earnings of $883 million, or 91 cents per diluted share, versus $812 million, or 85 cents per diluted share, in the year-ago quarter. Front-end comparable store sales, including those for general merchandise such as home goods and housewares, gained 2.2% in the third quarter as customer traffic decreased 0.7% but basket size increased 2.9% compared with the year-ago period, the company reported.

A Zacks Consensus Estimate of financial analysts was for 94 cents per diluted share.

Total comps increased 4.8%, Walgreens stated, and overall sales advanced 5.9% versus the year-earlier quarter to $19.4 billion. Operating income in the quarter came in at $1.03 billion versus $991 million in the year prior.         

GAAP net earnings were $722 million, or 75 cents per diluted share, versus $624 million, or 65 cents per diluted share, in the year-prior quarter. Adjusted third quarter earnings benefited from a lower effective income tax rate, favorable audit settlements and other discrete events.

“We continued to see improving top-line growth in the third quarter driven by increased daily living sales and strong increases in both prescriptions filled and our pharmacy market share,” Walgreens president and CEO Greg Wasson said in detailing the financial results. “At the same time, we are experiencing increased pressure on pharmacy gross profit margins. We maintained solid expense control in the third quarter to offset some of this pressure while understanding that there is more to be done. We will be accelerating our optimization efforts, including taking additional steps to lower expenses companywide. In addition, our joint venture with Alliance Boots continues to generate significant benefits.”

Walgreens opened or acquired 39 drugstores during the third quarter. As of May 31, the company operated 8,683 locations in all 50 of the United States, the District of Columbia, Puerto Rico, Guam and the U.S. Virgin Islands, including 8,217 drugstores nationwide, 120 more than a year earlier, it noted. Walgreens also operates worksite health and wellness centers, infusion and respiratory services facilities, specialty pharmacies and mail service facilities. The Walgreens Take Care Health Systems subsidiary manages more than 700 in-store convenient care clinics and worksite health and wellness centers, the company added. It’s E-commerce operation includes Walgreens.com, drugstore.com, Beauty.com, SkinStore.com and VisionDirect.com.