Walgreen Co. Reports Fiscal 2013 First Quarter Results
Walgreen Co. Reports Fiscal 2013 First Quarter Results
•Company reports adjusted first quarter earnings per diluted share of 58 cents, compared with adjusted earnings per diluted share of 71 cents in year-ago quarter; GAAP earnings per diluted share of 43 cents compared with 63 cents in last year's first quarter
•To address regulatory and audit considerations, company adopts one-quarter reporting lag for its investment in Alliance Boots, resulting in dilution of 7 cents to adjusted EPS in the first quarter, compared with an estimated accretion of 3 cents to adjusted EPS had the company used the previously announced one-month lag
•Alliance Boots business performance continues to achieve expectations, and joint synergy program is on track to deliver first-year targets
•Gross profit margins during first quarter increase 130 basis points versus year-ago quarter; comparable prescriptions filled improve 320 basis points from fourth quarter 2012
•More than 45 million people now enrolled for Balance™ Rewards loyalty program
DEERFIELD, Ill., Dec. 21, 2012 - Walgreen Co. (NYSE: WAG) (Nasdaq: WAG) today announced earnings and sales results for the first quarter of fiscal year 2013 ended Nov. 30.
Net earnings determined in accordance with generally accepted accounting principles (GAAP) for the fiscal 2013 first quarter were $413 million or 43 cents per diluted share, compared with $554 million or 63 cents per diluted share in the year-ago quarter.
Adjusted fiscal 2013 first quarter net earnings were $553 million or 58 cents per diluted share, compared with adjusted net earnings of $619 million or 71 cents per diluted share in the year-ago quarter. This year's adjusted first quarter results exclude the negative impacts of 6 cents per diluted share in acquisition-related amortization costs, 4 cents per diluted share from the quarter's LIFO provision, 3 cents per diluted share in costs related to Hurricane Sandy, and 2 cents per diluted share related to the company's acquisition of USA Drug and related store closures.
"During a quarter that included a number of non-operational items, as well as the ongoing Express Scripts impact, we saw the underlying performance of our business strengthen with improved gross profit margins and an upswing in comparable prescriptions filled in the quarter," said Walgreens President and CEO Greg Wasson. "We also were pleased with the business performance of our strategic partner, Alliance Boots, and are on track to meet our first-year synergy targets with them. As I have said before, Walgreens and Alliance Boots both perform well in historically tough economic climates, and together we now are better positioned for growth.
"In many respects, this quarter was a turning point with the increasing pace of return of Express Scripts customers to our pharmacies, as well as the enthusiastic customer response to our Balance™ Rewards program, with more than 45 million signups since the program launched. In addition, we saw strong demand for flu shots and other immunizations, which has continued into the month of December. Given these factors, we are confident in our strategy and ability to execute going into the new year."
Walgreens today also announced that it is reporting results from its investment in Alliance Boots on a one-quarter lag rather than a one-month lag period, as previously disclosed. This is intended to align the audit requirements for the investment and more efficiently address regulatory and audit considerations. While this does not affect the underlying equity income and synergies that are anticipated in the first 12 months since the Aug. 2, 2012 completion of Walgreens initial 45 percent investment in Alliance Boots, it does impact the quarterly and fiscal year timing in which the equity income and a portion of the synergies are reported. While only investment results from the month of August 2012 are included in Walgreens fiscal 2013 first quarter performance, the first quarter does fully reflect the incremental shares and interest expense associated with the transaction, resulting in dilution of 7 cents to adjusted EPS in the first quarter, compared with an estimated accretion of 3 cents to adjusted EPS had the company used the previously announced one-month lag period.
The company previously estimated its accretion related to the Alliance Boots investment for fiscal year 2013 would be 23 to 27 cents per diluted share. As a result of a one-quarter rather than a one-month reporting lag period, the company estimates that the accretion over the last three quarters of fiscal 2013 will be an adjusted 25 to 29 cents per diluted share, and an adjusted 18 to 22 cents for the full fiscal year. These estimates do not include amortization expense or one-time transaction costs, and reflect the company's current estimates of IFRS to GAAP conversion and foreign exchange rates.
First quarter sales decreased 4.6 percent from the prior-year quarter to $17.3 billion. Brand-to-generic prescription drug conversions negatively impacted sales by $883 million or 4.9 percentage points in the first quarter.
Front-end comparable store sales (those open at least a year) decreased 2.0 percent in the first quarter compared to the prior-year quarter, customer traffic in comparable stores decreased 4.2 percent and basket size increased 2.2 percent.
Prescription sales, which accounted for 63.8 percent of sales in the quarter, decreased 7.2 percent compared to the year-ago quarter, while prescription sales in comparable stores decreased 11.3 percent. The company filled 201 million prescriptions, a decrease of 3.2 percent over last year's first quarter. Prescriptions filled in comparable stores decreased 4.8 percent in the quarter, an improvement of 3.2 percentage points from the 8.0 percent decrease in the fourth quarter of fiscal 2012. The improvement was due primarily to the company's return to the Express Scripts, Inc. pharmacy network on Sept. 15. Total sales in comparable stores decreased 8.0 percent.
Gross Profit and SG&A
Total gross profit dollars in the first quarter decreased $5 million, or 0.1 percent, compared with the year-ago quarter, with LIFO gross profit margins increasing to 29.4 as a percentage of sales versus the year-ago quarter of 28.1. The growth in margins was driven primarily by an increase in generic prescription drugs dispensed. Front-end margins remained firm even as the company made gross profit margin investments through reward points for its Balance Rewards program throughout the quarter. In addition, Walgreens private brand products increased in share 2.0 percentage points over the year-ago quarter to 22.0 percent. The LIFO provision was $55 million in this year's first quarter versus $45 million last year.
Selling, general and administrative expense dollars increased $194 million or 4.6 percent compared with the year-ago quarter, including 0.9 percentage point for costs related to Hurricane Sandy; 0.6 percentage point for USA Drug acquisition-related costs; 0.3 percentage point for Alliance Boots transaction and synergy related costs; and 0.3 percentage point for other acquisition-related amortization.
In the first quarter, the company opened or acquired 218 new drugstores compared with 71 in the year-ago quarter.
The company also delivered operating and free cash flow of $601 million and $265 million, respectively, in the first quarter.