Walgreen Achieves Impressive Growth in Q1

Same-store sales increased 4.9%. Front-end comparable sales increased 2.7%. With a drugstore chain, the latter metric is particularly important since it measures non-pharmacy transactions. We know that everyone needs prescriptions, but they have choices, obviously. They can go to other drugstores; they can even go to Wal-Mart (WMT). What plays a role in the decision process? If you give the consumer a great, interesting shopping environment to browse through once the prescription is filled, then the consumer may choose to remain loyal to your pharmacy and buy other margin-friendly stuff. I therefore would like to see Walgreen get that front-end figure a little higher in coming months.

Which might be difficult. Driving business right now is the H1N1 situation. When that fades away, will Walgreen be able to keep the attractive growth rates?

Walgreen's management better be on top of things. It has to ensure that it is taking full advantage of the current traffic trends so that it can capture a significant amount of repeat business to the brand.

On a valuation and trademark basis, I prefer CVS Caremark over Walgreen. It will be interesting to see, however, how these two companies fare in the upcoming non-flu quarters, and what kind of disparity between them shapes up in terms of competitive advantage and customer retention.

Disclosure: I don't own any company mentioned; positions can change without notice.