Shares of retail drugstore chain, Walgreen (WAG, Financial), have risen 34% in the last year. It is the largest drugstore chain in the U.S. and has been further spreading its wings in order to grow. Its recent acquisitions have been quite helpful in its growth. This was clearly reflected in its first quarter results which were ahead of the Street's expectations. This resulted in an increase in its share price.
The interesting numbers
Revenue for the quarter surged 7% to $19.55 billion, as compared to the previous year. The top line was higher than the analysts' estimate of $19.43 billion. Revenue was driven by higher sales of generic drugs and pharmacy products. The same-store sales of the company, which excludes sales from newly opened stores during the period, rose 5.7% during the quarter. This was helped by a 2.7 % increase in customer traffic and a 4.2 % jump in the basket size, whereas the front end comp sales grew by 1.5% only.
One of the primary drivers during the quarter was the remarkable growth in the pharmacies' sales. The store pharmacies registered a growth of 8% over last year. This increase helped the revenue grow mainly because pharmacies make two-thirds of the top line of the company. Both the pharmacy and the retail business benefitted from the company's deal with Alliance Boots. The drugstore chain filled 222 million prescriptions during the period, an increase of 4.3% over the prior year.
The bottom line of the company was also impressive. Earnings jumped to $0.81 per share from $0.74 per share in the previous year and were higher than the estimates. The bottom line was boosted because the company saved $140 million in the quarter as the acquisition of Alliance Boots resulted in synergies. However, gross margin of the company fell 1 percentage point to 27.1% since the cost of generic drugs rose and third party reimbursement rates were lower. Nonetheless, it was partially offset by an increase in the number of branded drugs, which carries higher margins.
Walgreen has undertaken a program in order to cut costs by $1 billion. It plans to reduce its expenses through the synergies from its acquisition of Alliance Boots as well as through store redesigns and store relocations.
Brighter future awaits
The retailer seems to have a bright future because of the various initiatives undertaken by the company, which includes cost cutting measures. Its partnership with Alliance Boots is one the most attractive points to be considered. Its joint synergy program is expected to yield $650 million in fiscal year 2015. Also, this buyout has resulted in the international expansion of the company, bringing Alliance's presence in the Americas. It has also struck a deal with AmerisourceBergen Corp (ABC, Financial), which will help in expanding in the generic and branded drug space.
Further, Walgreen plans to add more branded products, which carry a higher margin. These upscale products will help in expanding the margins as well as the top line.
Summarizing
It is quite clear that this drugstore retailer is doing pretty well. Its efforts to control costs and expand its business through acquisition of other businesses should be fruitful. Also, more focus on upscale products should be beneficial in the future. Thus, the company looks good to go, even in the long run.
