| Sales and Stores Sales for Walgreens’ first quarter of 2005 increased 13.4% year-over-year to USD9.89 billion. The increase was fueled by a 14.4% growth in prescriptions sales, which accounted for 65% of sales for the 16-week period ended November 30, 2004. - Comparable store sales increased 9.4% compared to numbers reported for the same period last year.
- Pharmacy comps were up 11.3% year-over-year.
- Front-end comps increased 6.1% year-over-year.
- Prescription sales to third-party health care plans made up 93% of pharmacy sales in the quarter.
- The company opened 111 new stores in the quarter and plans to add a total of 450 throughout the year.
- Walgreens operated 4,680 stores at the close of the quarter, 389 more than at the close of last year’s first quarter.
- Including closures and relocations, the retailer expects to grow its store base by 365 stores in its fiscal year ending August 31, 2005.
Finance Net earnings grew 30.5% year-over-year to USD332.7 million, marking the most significant quarterly growth in four years. - Earnings were bolstered by a pre-tax gain of USD15 million from recent litigation settlements. Excluding the settlements, net earnings grew 26.8% to USD323.2 million.
- Gross profit was 27.4% of sales, an increase of 101 basis points that management attributed to:
- Improved purchasing terms;
- Increased use of digital photo-finishing services; and
- Strong sales of generic prescriptions.
- Selling, occupancy, and administrative expenses were 22.4% of sales. This 62 basis point increase was due to:
- The conversion from analog to digital photo-finishing labs.
- Costs associated with the retiring of leases for old photo labs; and
- Increased payroll to support the new in-store technology.
- More new store openings in this quarter (26) compared to numbers for the same period last year.
- Net sales that would have been 2% higher had there not been such an increase in sales of generic prescriptions.
- Cash and cash equivalents on hand increased from USD1.16 billion to USD1.31 billion.
- Inventories were up 15.4% to USD5.58 billion because of inventory associated with a distribution center that Walgreens opened in May 2004 in Moreno Valley, California.
MVI Interpretation Walgreens experienced strong first quarter results while investing heavily in stores and technology. Although costly, the rollout of digital photo-finishing labs and services is intended to drive trips and further distinguish Walgreens from its competitors. - The labs are now present in approximately 75% of its store base.
- The service is available 24 hours a day in more than 1,400 stores.
- Customers can print 4” x 6” digital prints at kiosks in all stores for USD0.29 per print. Online shoppers can have pictures shipped to their homes for the same price.
- The retailer is committed to “convenient locations and hours.” Walgreens is increasing the numbers of its 24-hour stores and adding more freestanding stores – 80% of locations at the end of the quarter.
- Due to a cold and flu season that arrived late this year, Walgreens expects strong results for its second quarter.
The company has the opportunity to grow its gross margins with the increased use of digital printing and increased sales of generic prescriptions. On the other hand, expenses will likely continue to increase because the technology is expensive to implement and there is a need for additional payroll to support the popular in-store service. Overall, these investments are aimed at improving the customer service experience and convenience positioning at Walgreens’ 4,680 stores throughout 44 states and Puerto Rico. For more news on Walgreens, click here.
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