Walgreens Earnings
March 24th, 2008 by Grant in: Stock ThoughtsWalgreen’s (WAG: chart, web, Y!) earnings came out today and they ended up beating Street estimates by 2 cents, and second quarter sales increased by 10.5% on comparable-store sales growth of 4.7%.
While the EPS was up, it didn’t match the sales growth, increasing just 6.5%.
So what’s the beef?
Walgreen’s earnings are commendable, but the fact that earnings aren’t out-growing sales leads me to believe margins are tightening. In fact, gross margins were down 14 basis points for a variety of reasons including mix shift and softer seasonal sales.
Expenses were up 11 basis points as a percentage of sales, however most of the expenses related to the opening of 121 new stores for the quarter.
I think there is still potential for Walgreen’s, but I think there is currently more downside risk than upside reward. There is a shift to generic drugs, with less margin still than the name-brand counterpart, and in these market conditions I think there are better opportunities waiting in the wings.
Tags: earnings | WAG
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