Though Walgreens reported an earnings gain of 85 cents per share, that fell short of Wall Street expectations of 91 cents per share. Subsequently, Walgreens' stock dropped from $48.05 before the earnings release to $44.17 at week's end.
But that's a story for day traders. Outside of the numbers, Walgreens outlined a three-point plan to boost front-end performance going forward. Meanwhile, several industry trends across pharmacy is helping to drive business higher behind the bench. So what happens if Walgreens not only continues its earnings growth trajectory, but actually beat Wall Street expectations next time?
A few Wall Street analysts reduced their expectations going forward, suggesting that pharmacy tailwinds today may peter out by quarter's end — a generic wave that peaked earlier in the fiscal year may translate into margin pressure going into fiscal 2014; unless the cough, cold and flu season produces another record year of illness, comparisons this fall will be difficult; and the boost behind any win-back of Express Scripts patients is finite and soon to be anniversaried.
But don't count Walgreens out of beating out even the most robust of expectations just yet. There's a longer-term play in motion — Walgreens' Balance Reward loyalty program. That program reaches its one-year anniversary in September, and going forward from that date, Walgreens will have a new comparison tool to sharpen promotional strategies for maximum efficiency. And judging from Walgreens' shift in strategy from loyalist acquisition to loyalist retention, expect the chain to identify escalating synergies between health, beauty and wellness and corresponding healthcare services.
The third initiative across the front end that Walgreens highlighted was localization, and that is another facet that will be better informed by Walgreens' Balance Reward program. While the reward program will be able to better define success vs. not meeting expectations, the reward program will not be able to pinpoint what should and shouldn't go into stores at the local level. But Walgreens has a team of savvy merchants coupled with a culture of experimentation that will take care of identifying tomorrow's opportunities. The Balance Reward program may then be deployed as a chisel to further refine local offerings.
The benefit behind the Balance Reward loyalty program will likely be further magnified with the final implementations of the Patient Protection and Affordable Care Act in 2014. Beyond the same-store sales comparisons that has historically provided guidance to a retailer's health, what is the metric that successfully measures Walgreens' outreach to employers? Or what is the metric that successfully measures Walgreens' benefit from participating in Accountable Care Organizations?
Developing best practices and building proven case studies in what the full presence of Walgreens — pharmacy, Take Care Health and worksite operations — will bring to bear on lowering an employer's healthcare cost will become a significant factor in winning the patient race for next year. And winning patients to manage, not scripts, will be the name of the pharmacy game then as outcomes-based medicine and an emphasis on prevention becomes more commonplace.