Walgreen Q1 Profits Get a Dose of Medicine (WAG)

Walgreen Company (WAG)

This is the time of year when retailers get placed under a microscope. Analysts, investors, and owners anxiously wait to see what type of results will be produced during one of the biggest shopping times of the year. Now that the economy is showing signs of improvement, analysts are interested to see if consumers are feeling the impact in their wallets and one of the best ways to do that is by looking at retail sales. Walgreen, one of the country’s leading drugstore chains, on Monday reported a 20% jump in quarterly profit thanks to strong growth in certain sectors of its business. What factors helped the drugstore top expectations? Will these same items help the company in the coming months?

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Stock Analysis

Similar to many other retailers, Walgreen Co. has been undergoing a variety of changes to bring customers back to their stores. The company has spent the last year cutting costs and revamping stores to make shopping in them easier. Walgreen has also been trying to increase its presence in the market by opening additional branches to compete with the large number of CVS/pharmacy (CVS: Charts, News, Offers) locations. All these things were definitely positive improvements, but did not account for the increase in revenue. The company’s number of prescriptions filled increased 12% over last year’s first quarter. Walgreen exceeded by 5.5% the industry-wide prescription growth rate, excluding Walgreens, during the same period as reported by IMS Health. Heightened awareness on the H1N1 virus also helped the company rake in dough during the months of September and October. Walgreen’s flu-shot campaign brought customers back in the store to get shots due to the fear of acquiring the possible deadly virus. With more money being spent on prescriptions and less on discretionary items, some believe that the company will continue to perform well in the coming months. However, this actually may not be the case.

Walgreen has already reported that it watched the surge in flu shots and prescriptions start to die down towards the end of the quarter, so this alone will not be able to prop up earnings in the coming months. This was likely a result of the panic surrounding the H1N1 virus dying down. Walgreen’s earnings may also be impacted by the passing of a health care bill. Depending on what is included in the bill, earnings may be swayed into negative or positive territory. Despite some of the issues facing the company, CEO Greg Wasson still has a positive outlook on the future. He said “We remain confident we can continue to generate strong cash flow, which provides us the financial strength and flexibility to continue investments in our core strategies while returning cash to shareholders.”

Retailers are still facing a lot of uncertainty and Walgreen is not free from it. Consumers are making baby steps, so earnings will continue to remain slightly volatile. A large percentage of Walgreen’s business involves items that consumers consider essential, so this may continue propping up its earnings until the economy becomes solid. Shares of Walgreen started the trading day out slightly lower after the news.

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