Walgreens riding out economic storm, propelling surge in chain’s stock price

It could have been so much worse.

 

That conclusion, apparently, is what investors drew from Walgreens’ sales and earnings report for the second quarter ended Feb. 28. And it was enough to push the company’s stock price up sharply and burnish the investment outlook for other drug retailers: even Rite Aid’s stock price responded with a nice up-tick.

 

 

By historical standards, a 6.7% drop in net income and flattened-out same-store sales growth would be considered a dismal performance by Walgreens, which has notched 34 years of consecutive sales and earnings records in one of the most remarkable and extended achievements in U.S. corporate history. But in the midst of one of the bleakest periods in the nation’s economic history, with consumers in wholesale retreat, retailers staggering under the weight of excess inventory levels and discretionary spending in a profound slump, Walgreens’ ability to ride out the storm was a dose of comfort to soothe an anxious Wall Street.

 

 

What’s more, the 6,400-store drug chain appears to be building a more solid foundation for the next phase of U.S. pharmacy retailing as other, weaker retailers fall prey to the recession. The company just bought New Jersey-based Drug Fair as that company spiraled into Chapter 11, and, tellingly, managed to boost its prescription unit dispensing volume by 4% in a period during which script counts declined among many of its rivals.

 

 

It’s all but certain that more rough days lie ahead, both for Walgreens and other pharmacy retailers, and for Wall Street. But the company’s ability to withstand the economic tsunami that has staggered the retail industry – and the apparent progress it’s making in its ambitious overhaul and cost-cutting program – point to better days ahead.