Walgreen (NYSE: WAG), a drugstore chain which competes with CVS Caremark (NYSE: CVS) and Rite Aid (NYSE: RAD), dropped the ball in the fourth quarter, at least as far as analyst estimates are concerned. On a GAAP basis, Walgreen increased its earnings per share by a nickel, coming in at 45 cents.
That would be pretty cool if there were no adjustments to be made. Unfortunately, there is one. It relates to an adjustment for vacation-time accrual, which added almost $80 million to the bottom line. Take that away, and you get no earnings growth, as earnings per share would have been 40 cents, meaning non-GAAP number missed expectations by 5 cents.
I think Walgreen is a strong brand in its space. However, with the economic meltdown continuing its dire course, I would imagine that the chain is going to become affected by it, strong brand or not. Drug prescriptions certainly might be considered a defensive element in such an environment, but keep in mind that Walgreen doesn't just make its money on prescription sales. It sells a whole host of items in every location. And I'd have to imagine that the consumer is going to be scaling back. Yep, get ready for the good ole negative wealth effect.
The company isn't doing badly in terms of sales. They were up almost 9% in the fourth quarter and almost 10% for the fiscal year. Comps during the quarter weren't stellar, but not completely disastrous, either. They came in at 2.6%. And cash flow from operating activities was up 29% for the year. Walgreen also wants to expand by buying Longs Drug Stores (NYSE: LDG), but that deal has yet to be achieved.
The stock is close to a 52-week low. I wouldn't trade it at these levels. Buying it for the long term would probably be okay, but let me repeat that ... the long term. I wouldn't be confident about buying this stock for a quick pop. In an environment like this, it's just too risky.
Disclosure: I don't own any company mentioned; positions can change at any time.
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Reader Comments (Page 1 of 1)
10-01-2008 @ 4:10AM
xddy4u said...
It's ridiculous the prices these outlets charges. If they would lower their prices so the seniors would continues shopping there might help. It's just crazy the prices they charges.