Retailers, consumers and prices
Walgreen Co. said consumers’ bargain shopping hit profit in the latest quarter. Still, Walgreen and other retailers might actually get a small benefit from the economic downturn and bank fallout. If banks ease up from opening ATMs on every corner, it could get easier for retailers to find attractive space for their stores.
The drugstore’s executives, in response to a question from UBS analyst Neil Currie during Monday’s conference call, said they’ve seen competition easing for good sites. They said banks started pulling back about six months ago and Walgreen now has more negotiating power when it’s looking for space. Still, it’s sticking with its plan to slow down its heavy dose of store openings. It added 561 stores to its lineup in fiscal 2008 and plans to add 495 new stores in fiscal 2009.
Walgreen also said it may add a loyalty card for its shoppers. So far, it has rounded up more than a million shoppers (the goal is several million) for the Walgreen Prescription Savings Club, which consumers pay a fee for in order to get cheaper drugs and a 10 percent reward on Walgreen-branded products. President Greg Wasson said 25 to 30 percent of those using the card so far are new to its pharmacies.
Check Out Circuit City posting its fifth quarterly loss for the past six quarters and withdrawing its financial outlook, as declining store traffic put a damper on sales right before the key holiday season.
Circuit City, which competes with Best Buy, has been the subject of takeover speculation and other questions about its future as results weaken, hurt by consumers dialing back on nonessential spending amid high food and gas prices and tight credit markets.
Longs, the drug store chain with a heavy concentration of stores in California, got a surprise offer from Walgreen late on Friday that topped its previous buyout agreement with rival CVS Caremark.
Longs shares opened on Monday ahead more than 5 percent to $75.80, slightly above the Walgreen offer of $75 per share and proving that investors believe they can’t lose as the two biggest U.S. pharmacy operators battle over an acquisition.
At the very least, analysts say, CVS will have to sweeten its earlier $71.50 per share bid, despite its protestations to the contrary. And that doesn’t even take into account the possibility that Walgreen will become even more aggressive to keep Longs out of its rival’s hands.
The Walgreen offer is also lending a helping hand to Longs’ two biggest shareholders, who said on Friday they wouldn’t give up their shares to CVS because the offer price was too low.
What’s clear is that even as Wall Street reels from the downfall of Lehman Brothers and a surprise buyout of Merrill Lynch, a deal for purveyors of Tylenol and toothpaste can still capture some investors attention.
Footnote: Lehman has been advising CVS on the Longs deal, along with Deutsche Bank. Curious how quickly CVS can regroup to make a higher offer, if it should choose to do so?
The No. 3 U.S. drugstore chain said its pharmacy same-store sales fell 0.5 percent, as generic drugs were introduced and allergy medicine Zyrtec was switched to over-the-counter status.
Generic drug rollouts hurt rival Walgreen as well. That company said a day earlier those drugs cut into its pharmacy same-store sales by 2.1 percentage points.
Check out the quarterly results at Walgreen, one of the largest U.S. drugstore operators.
The company posted a 2 percent increase in quarterly profit, amid a weak U.S. economy and slowing growth in sales of prescription drugs — in the reported quarter, Zyrtec was switched to over-the-counter status.
Check out the Easter boost in drugstore land.
Drugstore chains have been hurt by the weak U.S. economy of late, especially in the nonprescription part of the store.
But Easter seems to have helped at least one of the largest drugstore chains: Walgreen’s.
Walgreen Co said strong sales of Easter merchandise helped it post better-than-expected general merchandise sales in March. And they aren’t just talking about the fact that Easter came early this year, moving up purchases that would normally have occurred in April.
“The company recorded strong Easter seasonal sales, and front-end sales exceeded expectations for the month despite the slowing economy,” it said in a news release.
Of course, those front-end sales were needed to offset tepid prescription drug sales. The switch of allergy medicine Zyrtec to over-the-counter status, and a slower flu season for prescriptions hurt sales in that area as did an influx of lower-priced generic drugs in the past 12-months.
Still, for at least a month, it was chocolate bunnies to the rescue.
Also in the basket:
Best Buy profit better than expected
Lululemon’s sales double, to close Japan stores
Knit prices soar up to 20 percent for fall (WWD, subscription required)
The drug store chain took a big step toward expanding beyond its retail business by announcing it planned to buy two health-care companies, publicly traded I-trax and privately held Whole Health Management.
The retailer has created a health and wellness division to manage health centers and pharmacies at worksites. Walgreen already operates consumer clinics in some of its stores, but now it sees a big opportunity to help companies lower their health costs.