Despite expected headwinds from slower generic drug introductions, comparisons with last year's flu season and severe weather, Walgreens saw solid top-line growth in the second quarter ended Feb. 28, driven by record quarterly sales and record second-quarter prescriptions filled.
The company also continued to gain prescription market share while maintaining a firm hold on its costs.
Walgreens posted a sales increase of 5.1% to $19.6 billion for the quarter. First half sales were up 5.5% to $37.9 billion.
Prescription sales, which accounted for 62.2% of sales in the quarter, increased 7%, while prescription sales in comparable stores increased 5.8%. The company filled 214 million prescriptions in the quarter, an increase of 2.8% over last year's second quarter. Prescriptions filled in comparable stores increased 2.2% in the quarter. As of Feb. 28, Walgreens increased its retail prescription market share 20 basis points from a year ago to 19% as reported by IMS Health on a 30-day adjusted basis.
Walgreens also saw strong growth in prescriptions filled for Medicare Part D patients, which increased 16% in the second quarter compared with last year's quarter, while the company's Part D market share increased 80 basis points in February compared with the same month a year ago. "Our Medicare Part D program is accelerating our momentum in pharmacy," Greg Wasson, president and CEO Walgreens, told analysts. "As we move forward we are well positioned with senior customers as a preferred provider in four of the top national plans," he said.
And Walgreens has been recognized by patients and payers for tightly integrating its health and wellness services with its retail clinic offerings, Wasson said. Patients appreciate the convenience of services and payers view Walgreens as an emerging alternative healthcare model and part of the patient care delivery team, he said. "To help meet this growing demand, we have a goal to add nearly 100 new Healthcare Clinic locations in calendar 2014 on top of our 400 current retail clinics."
In addition, Walgreens has grown its 90-day at retail business substantially. The 90-day at retail prescriptions were up 15%, Wasson said. "For perspective, our 90-day at retail alone is as large as one-third of the total mail market industry," Wasson said.
The total number of all CDC-recommended immunizations and vaccines administered by Walgreens reached 8.6 million in the first half of the fiscal year, an 11% increase over the previous year. And it's not just influenza vaccinations, Wasson noted. "We are the No. 1 retail provider of Zostavax for shingles, [for example]."
Front-end comparable store sales increased 2% in the second quarter, customer traffic in comparable stores decreased 1.4% and basket size increased 3.4%, while total sales in comparable stores increased 4.3%.
"We head into the second half of the year with nearly 80 million active members in our Balance Rewards loyalty program and with expectations that the generic drug headwind that affected the first half will ease and turn around by the end of the year," Wasson added. "With 80 million active members — we now have the largest loyalty program in the industry," he told analysts.
The company is leveraging insights from its Balance Rewards loyalty program to provide customers with more value and simplified promotions. Balance Rewards reached a milestone in February with more than 100 million enrollees and nearly 80 million active members at the end of this year's second quarter.
Walgreens is also leveraging its omnichannel reach across all sales channels, Wasson said. "Today, 9 million customers touch the Walgreens brand everyday — at our stores, over the web or through mobile channels — making Walgreens a true omnichannel provider."
"In addition, our joint synergy program with Alliance Boots is expected to exceed its second-year estimate, and we are bringing critical elements of the Well Experience to additional stores," Wasson noted. Wasson noted there are now 628 Well Experience stores across the nation.
The combined synergies for Walgreens and its strategic partner, Alliance Boots, in the first half of fiscal 2014 were approximately $236 million. The joint synergy program is now estimated to deliver second-year combined synergies of $375-$425 million, an increase from the previous second-year estimate of $350-$400 million.
Walgreens also announced Tuesday that as part of its efforts to optimize the company's asset base, it plans to close 76 drug stores during the second half of fiscal 2014. Including these store closures, Walgreens still expects a net increase in its store count in fiscal 2014 of approximately 55-75 locations. "While we seize the opportunity for store growth as the population ages and consumers look to community pharmacy for their health care needs, we also continue to focus on optimizing our assets and organization to position Walgreens for our future as a global company," Wasson said.
The store closures represent less than 1% of Walgreens' store base, Wasson added.
In the fiscal 2014 second quarter, the company opened or acquired 28 new drug stores compared with 29 in the year-ago quarter.
At Feb. 28, 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 8,210 drug stores nationwide, 138 more than a year ago. Walgreens also operates worksite health and wellness centers, infusion and respiratory services facilities, specialty pharmacies and mail service facilities. Its Take Care Health Systems subsidiary manages more than 700 in-store convenient care clinics and worksite health and wellness centers.