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Walgreens confident in Q2 results following Express Scripts exit Jan. 1

BY Michael Johnsen

DEERFIELD, Ill. — On the eve of a potential Federal Trade Commission approval of the Express Scripts-Medco merger, Walgreens’ underlying fundamentals still are strong, Walgreens president and CEO Greg Wasson told analysts Tuesday morning. It’s that underlying strength that has helped Walgreens in the wake of its exit from the Express Scripts pharmacy benefit network, a factor that impacted Walgreens’ net earnings by 7 cents per diluted share for its second quarter ended Feb. 29.

The big question is what happens to that Medco business if the Exress Scripts-Medco merger is approved? "We have a good relationship with Medco and a long-term contract which we intend to honor," Wasson said. Walgreens expects that contract to stand, however Wasson reiterated that Walgreens is "steadfast in the belief that this decision [to not renew the ESI contract] is in the long-term interest of our employees … and shareholders." If the terms of its Medco contract did change, a change that Wasson characterized would be "extraordinary," Walgreens would stand firm on negotiating reimbursement rates that recognize Walgreens’ value. Wasson added that there has been no indication that its terms with Medco would change if the ESI-Medco merger were approved.

Express Scripts represented 88 million prescriptions for Walgreens in 2011, compared with 125 million prescriptions associated with Medco members. Walgreens’ Medco book is shrinking, however, to 108 million prescriptions at the top of 2012 and a projected 74 million prescriptions at the top of 2013, due to expected health plan migration out of the Medco pharmacy benefit manager offering.

Wasson is excited, however, about its negotiations with health plans going forward. "We’ve never been this busy this early in [the PBM selling season]," Wasson said. One of the points Walgreens has been making around its ability to drive health plan savings within a pharmacy network is 90-day fill at retail, which can generate between 7% and 9% in savings, according to the retailer. Walgreens 90-day fills are up 31%, Wasson reported. "This demonstrates that the true value of a 90-day [fill] at retail is becoming clear."

However, if not for a mild cold and flu season, Walgreens may have finished its second quarter with higher comparable net earnings despite its exit from the ESI pharmacy network. Net earnings for the second quarter were $683 million, a 7.7% decrease. Overall net earnings per diluted share were 78 cents, a 2.5% drop from the 80 cents per diluted share reported in the year-ago quarter. Walgreens reported that the mild cold and flu season negatively impacted the reported net earnings by 3 cents per diluted share.

This year’s flu season represents the mildest start in 29 years, as characterized by the Centers for Disease Control and Prevention. Flu shots administered at pharmacies and clinics this flu season through Feb. 29 totaled 5.5 million, compared with 6.2 million a year ago.

Net earnings per diluted share for the first half of fiscal 2012 ended Feb. 29 were $1.41 per diluted share, a decrease of 0.8% from $1.42 per diluted share in the first half of fiscal 2011. This year’s results include the impact of 9 cents per diluted share from the effect of no longer being part of the Express Scripts network and the impact of 1 cent per diluted share in Drugstore.com operations and integration costs. Last year’s results include the impact of 1 cent per diluted share in restructuring and restructuring-related costs associated with Rewiring for Growth, and 1 cent per diluted share in Duane Reade integration costs. Net earnings for the first half of fiscal 2012 were $1.24 billion, down 6.3%.

Walgreens projects the annual impact of the ESI exit will be 21 cents per diluted share.

Second-quarter sales increased 0.8% from the prior-year quarter to $18.7 billion, while first-half of 2012 sales grew 2.7% to $36.8 billion. Prescription sales, which accounted for 61% of sales in the quarter, decreased 1.7%, while prescription sales in comparable stores decreased 3.9%. The company filled 196 million prescriptions in the quarter, a decrease of 4.2% over last year’s second quarter. Prescriptions filled in comparable stores decreased 4.9% in the quarter.

Walgreens acquired the prescription files and inventory from 100 chain and independent pharmacies in the quarter, including more than 30 Kmart pharmacies. Additionally, AARP selected Walgreens for a three-year contract to deliver retail drug store program benefits to AARP members. The relationship between Walgreens and AARP, which began in 2006, will provide AARP members with exclusive offers and rewards, and includes member and community outreach to promote health and wellness.

Meanwhile, front-end comparable store sales increased 2.1% in the second quarter, customer traffic in comparable stores increased 0.7% and basket size increased 1.4%, while total sales in comparable stores decreased 1.5%.

All second-quarter comparable store sales and prescription figures include 29 days in February 2012, Walgreens reported.

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Nielsen: Most global, socially conscious consumers consult social media when making purchasing decisions

BY Allison Cerra

NEW YORK — A new survey from Nielsen is hoping to shed light on the world’s socially conscious consumers, who are those that are willing to pay extra for products and services from companies that implement programs designed to give back to society.

According to the company’s Global Corporate Citizenship survey — which pooled responses from more than 28,000 Internet users in 56 countries from Aug. 31, 2011 to Sept. 16, 2011 — showed that 46% of those surveyed are considered global, socially conscious consumers. Among them, nearly two-thirds (63%) are under 40 years old.

"It’s clear that corporate social responsibility efforts resonate with a specific group of consumers," said Nic Covey, VP of Nielsen Cares, Nielsen’s global corporate social responsibility program. "Marketers need to know who those consumers are in order to maximize the social and business return of their cause marketing efforts. This understanding allows brands to engage in social impact efforts that appeal to the right consumers with the right causes and through the right channels.

One crucial thing these consumers had in common, Nielsen said, was their increased likeliness to consult social media to help make purchase decisions (59% versus 46% of all respondents). Additionally, when it comes to brands and advertising, global, socially conscious consumers said they trusted recommendations from people they know (95%) and looked for opinions and information posted by other consumers online (76%).

"In order for cause marketing efforts to affect sales, customers must first be aware of a company’s efforts," Covey added. "Nielsen’s information indicates that social media is a critical tool for effective cause marketing."

It is important to note, however, that the geography for this demographic reaches far and wide. Nielsen found that more than half of those in the Asia Pacific region (55%), followed by the Middle East and Africa (53%) and Latin America (49%) are more willing to pay extra for products and services from socially responsible companies than consumers in North America (35%) and Europe (32%). And among 18 causes reviewed, Nielsen found that respondents were most concerned about environmental (66%), educational (56%) and hunger causes (53%) for companies implementing programs.

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Growing electronic needs

BY Barbara White-Sax

Consumer electronic accessories are a big business, and drug stores increasingly are grabbing more share. In 2011, mobile phone accessories sales totaled $1.24 billion, up 10% from 2010, according to NPD Group.


“Accessories are very inexpensive, and they have a large base of users,” said Stephen Baker, NPD VP and senior industry analyst for consumer technology. “Every customer that’s coming into a drug store has a need for screen protectors, ear buds, headphones or cases. So there’s a lot of opportunity to sell products that generally retail for under $20.”


Gary Rep, VP sales and marketing for FiFo Wireless, said more than 96% of Americans have cell phones, and the average consumer spends $69 or more on cell phone accessories. FiFo created a floor-stand spinner rack that brings together the most popular cell phone products — most retailing for $11.99 — in a turnkey display that takes up 1 sq. ft. of floor space.


Bluetooth accessories generally exceed the $11.99 price point, but consumers, especially in business areas, are willing to spend on products that have become a necessity.


The accessories segment offers steep margins. Mobile phone accessories, ear buds and headphones are some of the fastest-growing segments of the category. “There’s been a real rebirth in the headphone category. The growth [is in] very high-end products that bear the name of rappers. The category has become a fashion statement,” said Alan Wolf, senior 
editor at Twice magazine.

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