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Walgreen (NYSE: WAG) reported sluggish Q3 numbers last week. Net sales increased a little under 10% to $15 billion. Net income increased a whopping two pennies to 58 cents per diluted share (the term "whopping" is used here sarcastically). According to this article, Walgreen met top-line expectations but missed the bottom-line call by a penny.
Gross margin remained relatively stable, but the net margin dropped to 3.8% in the quarter compared to 4.1% in the previous year's similar period. But same-store sales increased 3.4%, which is a decent number. Also, operational cash flow jumped over 19% to $2.5 billion. That's excellent; it's always good to see cash coming in. It helps mitigate the tepid earnings expansion. Walgreen did well with its cash-flow statement last time around as well. Walgreen management cited the economy as a factor in its earnings stats and highlighted the fact that it cut back on expenses, including advertising. Making sure costs don't get out of hand is important, but I'd be careful about eliminating too much of the advertising budget. Competing with CVS Caremark (NYSE: CVS), Rite-Aid (NYSE: RAD), and the pharmacy at Wal-Mart (NYSE: WMT) obligates brand-building and differentiation.
Walgreen's Q3 wasn't beyond awesome, but it was solid enough. The stock is only down slightly as I write this. As a long-term play on the need for drugstores, it's not a bad way to go.
Disclosure: I don't own any company mentioned; positions can change at any time.
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Reader Comments (Page 1 of 1)
6-24-2008 @ 10:40AM
P.J. Messineo said...
Okay folks....when looking at Walgreen, look at the big picture. If this was a privately owned company, with their recent numbers, the owners and directors would be dancing in the street. For long term investors, Walgreen is the leader in its category and a big winner. Part of the problem with the stock market seems to be the SEC short-selling change made last August. Prior to that time you could short sell only when a stock was going up. Now with the new SEC change, you can short sell when a stock is going down.This is gambling and opens the market and many fine companies to the vagrancies computer traders, short-short traders etc. Yes, their not investors in America's great companies, they are gamblers and the SEC should reverse this short-selling rule.