Walgreens Focus on Loyalty Program

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Recently, Walgreens (WAG) disclosed that its customers enrolled under the Balance Rewards loyalty program in future, can earn more points by participating in activities that enhance physical fitness. Loyalty members can redeem these points for worthwhile rewards from the company.

Until recently, members earned 10 points for a mile walk. Now members can earn points for other health-related activities besides earning 20 points for that mile walk. With this initiative dubbed Steps with Balance Rewards, Walgreens can also track the healthy behavior of customers.  

Walgreens launched its customer Balance Rewards loyalty program in Sep 2012, which has recorded more than 60 million registrations to date. As per management, it is generating a majority of sales.

In the second quarter of fiscal 2013, the customer traffic in comparable stores declined 5.2% year over year. The latest initiative is likely to improve customer traffic at the company’s comparable stores. This should provide some comfort as Walgreens continues to face a sluggish sales environment.

The company’ sales in the most recent quarter missed the Zacks Consensus Estimate for the fourth time in a row. This was despite the last quarter being the first full quarter to include the benefit from the return of Express Scripts (ESRX) customers.

Nonetheless, things are looking up for Walgreens. Its long-term deal with AmerisourceBergen (ABC) should improve its global pharmaceutical supply chain. In addition, we are encouraged to note Walgreens’ timely progress for delivery of first-year synergy targets following its Alliance Boots deal. If the recent turn of events is any indication, the company is leaving no stone unturned to return to sales growth trajectory. Walgreens’ return to growth, though not robust, is realistic.

In light of these facts, the stock continued its bullish run edging past resistance levels. Shares of Walgreens inched towards a 52-week high of $47.87 on Apr 2. The closing price of $47.32 reflects a solid year-to-date return of 27.8%.

However, with two successive earnings misses until the most recent quarter and a glaring lack of clarity in estimate revision trends for the ongoing fiscal, the stock carries a Zacks Rank #3 (Hold). On the other hand, drug retailer Rite Aid Corporation (RAD) carries a Zacks Rank #1 (Strong Buy) and warrants a look.

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