Walgreens Reports Record Q3 ‘09 Sales
Drugstore retailer Walgreen Co.
reported record sales of $16.2 billion in its Q3 fiscal 2009 (ended May 31, 2009). Despite this result, Walgreens still saw net earnings decline almost 9%. Selected financial highlights and analysis follow.
Q3 2009 Highlights
- Quarterly sales increased 8%, from $15 billion to a record $16.2 billion. Sales for the first nine months of fiscal 2009 grew 7.2%, from $44.4 billion to $47.6 billion.
- Quarterly net earnings declined 8.8%, from $572 million to $522 million. Net earnings for the first nine months of fiscal 2009 decreased 8.4%, from $1.71 billion to $1.57 billion.
- Quarterly comparable store sales increased 2.8%, including a 0.9% increase in front-of-store sales.
- Quarterly prescription sales, which accounted for 65.6 of total sales, climbed 8.2% overall and 3.8% in comparable stores. Walgreen’s prescription fill rate grew 8.3% for the quarter.
- Quarterly SG&A expenses increased 8.4%, from $3.3 billion to $3.6 billion.
- Quarterly gross profit margin decreased from 28.3% of sales to 27.5% of sales.
Savings and Customer Initiatives Impact Earnings
Walgreens attributed its decline in net earnings to costs associated with its ongoing
Rewiring for Growth cost reduction/productivity improvement plan, as well as its Customer Centric Retailing (CCR) initiative that will streamline assortments and devote more store selling space to skin care and cosmetic products. Walgreens says the Rewiring for Growth initiative is on pace to reach $1 billion in annual cost reductions and productivity gains beginning in 2011.
The retailer cited a benefit of 1.4 percentage points due to more patients filling 90-day prescriptions as partially driving its prescription sales growth. Walgreens says it exceeded the industry-wide quarterly prescription sales growth rate (excluding Walgreens) by 5.7 percentage points.
For its quarterly gross margin decline, Walgreens cited the impact of its front-end product mix, non-retail businesses and CCR markdowns. Helping overall margins were an increase in pharmacy margins as a result of the impact of generic drug sales.
Quarterly Activity
Walgreens rolled out its new CCR format to 35 pilot stores, and plans to covert all stores to the CCR format by the end of 2010. Walgreens also optimized assortment resets for nearly 40 product categories nationwide. Other notable quarterly activity included:
- Offering free medical tests and routine treatments to customers who lose their jobs and health insurance at its Take Care in-store wellness centers through 2009.
- Partnering with entertainment and licensing company Marvel Entertainment for a direct-to-retail merchandise program that will begin in Q2 fiscal 2010.
- Purchasing 31 New Jersey stores from bankrupt drugstore retailer Drug Fair. The stores will be repositioned as Walgreens locations.
As of May 31, 2009, Walgreens operated 7,361 locations in 49 states, the District of Columbia, Puerto Rico, and Guam.
