WAG Q2 results headed in right direction as chain prepares three new flagship openings in DC, NY and Boston

DEERFIELD, Ill. — Even as Walgreens expands its operation globally through strategic partnerships with both Alliance Boots and now AmerisourceBergen, the pharmacy operator continues to create some retail pop in the U.S. market. For example, Walgreens has set the stage for the opening of three more flagship stores. A Walgreens flagship opens in downtown Washington D.C. later this week. Next, Walgreens will open its third New York Walgreens flagship in the Empire State Building later in March and next month New England will see its first Walgreens flagship in Boston. 

"These locations are raising the Walgreens brand in important markets as we continue to drive transformation of our stores across the entire network," noted Walgreens president and CEO Greg Wasson during a second-quarter conference call with analysts Tuesday morning. 

And while Walgreens' omnichannel pharmacy brand is becoming better recognized as the go-to shopping destination for health and beauty, there are a number of tailwinds helping to bolster Walgreens performance as well. For example, Walgreens continues to see a growing influx of returning Express Scripts patients, Wasson told analysts. Also, Walgreens is now a preferred drug store in four Medicare Part D plans "giving these members a financial benefit when they choose Walgreens over our comeptitors," Wasson said. Other tailwinds include a reinvigorated private label offering and the cycling of Walgreens' promotional strategy from last year, which included more print placements versus digital media. 

And Walgreens Balance Rewards program continues to excel, as evidenced by the 60 million consumers who have signed on since its inception six months ago. 

Walgreens tabulated sales of $18.7 billion for the second quarter ended Feb. 28, which were flat compared to the prior-year quarter. First half sales decreased 2.3% to $35.96 billion.

Walgreens reported that its joint synergy program with strategic partner, Alliance Boots, continues to be on track to deliver its first-year target of $100-$150 million in combined synergies. “Alliance Boots contribution to our results was in line with our expectations this quarter, and we anticipate that to continue in the second half of our fiscal year,” Wasson said.

The two companies also announced earlier today a strategic, long-term relationship with AmerisourceBergen, one of North America’s largest pharmaceutical services companies. Under the agreement, Walgreens will expand its existing relationship with AmerisourceBergen into a 10-year comprehensive primary distribution agreement for branded and generic pharmaceutical products. In addition, Walgreens and Alliance Boots will collaborate with AmerisourceBergen on global supply chain opportunities and will have rights to acquire a minority equity position in AmerisourceBergen.

Front-end comparable store sales were down 2.6% in the second quarter. Customer traffic in comparable stores decreased 5.2% and basket size increased 2.8%, while total sales in comparable stores decreased 2.6%. All second-quarter comparable store sales and prescription figures include 29 days in February 2012.

Prescription sales, which accounted for 61.1% of sales in the quarter, were flat, while prescription sales in comparable stores decreased 2.7%. The company filled 208 million prescriptions in the quarter, an increase of 6% over last year’s second quarter. Prescriptions filled in comparable stores increased 4.3% in the quarter. 

As of Feb. 28, Walgreens increased its retail prescription market share 50 basis points from the end of its fiscal 2013 first quarter on Nov. 30, 2012, to 19.2%, the company reported. 

Flu shots administered at pharmacies and clinics this flu season were up 27.3% through Feb. 28, totaling 7 million compared with 5.5 million a year ago.