DEERFIELD, Ill. — With the announcement of its first-quarter results, Walgreens continues to fire on all cylinders of its straight-three engine, including advancements across its Well Experience store base, the continued transformation of its pharmacy operations to better meet the needs of today's evolving healthcare system and the further establishment of a global supply chain to drive economies of scale.
In further establishing Walgreens' "Well Experience" across the chain, Walgreens opened or converted 87 Well Experience stores in the first quarter, bringing the total to 600, or 7.3% of the chain's store base. More than two-thirds of Walgreens November transactions were completed through the Balance Rewards loyalty program, which totals 74 million active members.
"We are continuing to see a value-consious consumer and the impact of a soft economy," Greg Wasson, Walgreens president and CEO told analysts Friday morning. "We responded in meaningful promotional investments in the quarter, resulting in an increase in traffic of 210 basis points compared to fourth quarter fiscal 2013," he said. "While these numbers represent solid gains in our daily living business, as we go forward in fiscal 2014, we will leverage our data and insights from our Balance Rewards to improve the effectiveness of our promotional investment."
Looking ahead, Walgreens is enhancing its beauty offering, rolling out an enhanced department in nearly 200 of our Phoenix and Arizona stores this quarter and plans to utilize its Balance Rewards program to drive more productive promotions in both beauty and other parts of the store.
Toward transforming the role of community pharmacy as a critical component of the healthcare paradigm, Walgreens took the next step with the planned national rollout of Theranos Wellness Centers by opening two new centers at Walgreens stores in the Phoenix area. A Theranos Wellness Center also is located at a Walgreens store in Palo Alto, Calif.
During the quarter, Walgreens received accreditation for its Healthcare Clinics at select Walgreens stores nationwide from the Accreditation Association for Ambulatory Health Care and the American Hospital Association’s exclusive endorsement of Walgreens Well Transitions for the program’s push for greater medication adherence. The innovative, coordinated care program aimed at improving medication adherence has demonstrated reductions in hospital readmission rates by helping patients better understand prescription therapies during and after discharge.
And Walgreens expanded on a unique collaboration with Johns Hopkins Medicine with the opening of a new Walgreens store adjacent to the JHM campus. Walgreens also is providing initial funding for the new Brancati Center for the Advancement of Community Care, which will develop and test new models of collaborative care to improve the health of communities using the unique skills of pharmacists, nurse practitioners and others.
Prescription sales, which accounted for 64.7% of sales in the quarter ended Nov. 30, increased 7.3%, while prescription sales in comparable stores increased 7.2%. The company filled a record 213 million prescriptions in the quarter, an increase of 5.8% over last year’s first quarter and an indication that the Express Scripts situation is in the rear-view mirror.
Prescriptions filled in comparable stores increased 5.5% in the quarter. The company exceeded by 290 basis points the prescription growth rate of the rest of the industry during the same period as reported by IMS Health. As of Nov. 30, Walgreens increased its retail prescription market share 50 basis points from a year ago to 19.4%, also as reported by IMS Health on a 30-day adjusted basis.
Walgreens administered 6.7 million immunizations in the quarter, up 34% as compared to the year ago period.
Walgreens will be focusing on ensuring the business of Medicare Part B patients moving forward, as well as focusing on driving non-flu immunizations beyond the flu season. And Walgreens aims to outpace the industry in growth of Medicare Part D patients again this year.
Walgreens posted a first quarter sales increase of 5.9% to a record $18.3 billion. Front-end comparable store sales for the quarter increased 2.4% in the first quarter, customer traffic in comparable stores increased 0.2% and basket size increased 2.2%, while total sales in comparable stores increased 5.4%. Walgreens launched several Boots product brands, including No7, across Walgreens stores in the Phoenix market. Previously, three other Boots product brands were launched nationally in Walgreens stores, including No7 Men, Mark Hill Salon Professional and Indeed Laboratories.
“Given the continued soft economy, we were generally satisfied with our top-line growth where we increased both traffic and sales for the quarter as well as our pharmacy market share,” Wasson said. And though the generic wave and Walgreens' promotional stance across the front-end negativey impacted margins, Wasson said, Walgreens still grew its gross profit dollars through expense control.
“In the second quarter, we will be taking further steps to balance front-end sales and margin,” Wasson said. “In terms of pharmacy margin, we expect the effect of the trough in the generic wave to be similar to the first quarter while moderating during the balance of the fiscal year. We also expect our results related to seasonal flu next quarter to reflect comparisons to the same period last year, which was one of the most active flu seasons in the last 15 years. We will continue our sharp focus on expense management as we address the challenging environment.”
Against the establishment of an efficient global platform, Walgreens began the implementation on Sept. 1 of a 10-year agreement with AmerisourceBergen for pharmaceutical distribution. And the combined synergies for Walgreens and Alliance Boots in the first quarter were approximately $107 million.
Walgreens and Alliance Boots advanced its joint vision with the appointment of Richard Ashworth as healthcare director, Health & Beauty U.K. and Republic of Ireland, for Alliance Boots. Previously, Ashworth was Walgreens corporate operations VP for the western United States. In addition, Walgreens advanced its digital strategy by naming current president of e-commerce Sona Chawla as president of digital and chief marketing officer.
Regarding other initiatives pursued by Walgreens, the Chicagoland retailer further established itself in North Carolina with the completion of its acquisition of certain assets of Kerr Drug’s retail drug stores and specialty pharmacy business during the quarter.
Walgreens has also made strides toward a greener operation, with the opening of what the company believes to be the nation's first net zero energy retail store, where the store produces energy equal to or greater than it consumes. "We're investing in this store to bring what we learn to our other locations and help us reduce our chain-wide energy consumption 20% by 2020," Wasson said.
In the first quarter, the company opened or acquired 84 net new drug stores compared with 128 in the year-ago quarter.
As of Nov. 30, Walgreens operated 8,681 locations in all 50 states, the District of Columbia, Puerto Rico, Guam and the U.S. Virgin Islands. The company has 8,200 drug stores nationwide including Duane Reade stores, 142 more than a year ago. Walgreens also operates worksite health and wellness centers, infusion and respiratory service facilities, specialty pharmacies and mail service facilities. Its Take Care Health Systems subsidiary manages more than 750 in-store convenient care clinics and worksite health and wellness centers.