CVS Caremark Corporation (CVS): Is Walgreen Company (WAG) Running Out of Fresh Ideas?

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After a disappointing third-quarter earnings report, Walgreen Company (NYSE:WAG) is ready to double down on efforts to blur the distinction between its pharmacy business and new retail operations. In a recent interview with Fortune, CEO Greg Wasson said the opportunity for expanding front-end sales is too great to pass up, so it will offer more fresh foods to consumers.

Walgreen Company (NYSE:WAG)

Earlier this year the pharmacy chain said that groceries were the elixir for what ails it, and while sales have grown in the intervening months, they’ve been below expectations as foot traffic has continued to decline.

In its June quarterly earnings report, Walgreen Company (NYSE:WAG) said sales rose 3.2% to $18.3 billion with front-end revenues barely nudging higher at 0.4% likely due to customer traffic in comparable stores dropping sharply, or nearly 4%. It was saved only because its average basket size increased 4.4%.

Walgreen Company (NYSE:WAG) further claims it increased its pharmacy market share from 18.4% to 19.2%, suggesting the very public problems it had with Express Scripts Holding Company (NASDAQ:ESRX) may be a thing of the past now, but that makes it a more competitive battlefield with CVS Caremark Corporation (NYSE:CVS), which is also experiencing slower front-end sales, even though Walgreen Company (NYSE:WAG) fared better.

Front-of-store revenues at CVS Caremark Corporation (NYSE:CVS) were down 0.4%, but it blames the shift in the Easter holiday for the 65-basis-point shift. With Walgreen Company (NYSE:WAG)’s fiscal third quarter ending on May 31 and CVS Caremark Corporation (NYSE:CVS)’ fiscal second quarter ending a month later, Easter falling on March 31 could indeed be why Walgreen Company (NYSE:WAG)’s sales were higher. We’ll need to see how its fourth-quarter results fare to understand whether operations are truly on the mend or if it was simply the beneficiary of holiday-shifting. Since Rite-Aid‘s quarter also ends at the end of May and it also saw front-end sales rise 0.4% in its first fiscal quarter despite comps and pharmacy sales falling, I’m inclined to believe this may be a one-off result for Walgreen.

While I remain skeptical of the pharmacy chain’s decision to go after fresh produce as a means of keeping the momentum going, it at least shows Walgreen is thinking about how to turn its business around and make it a more meaningful shopping experience for its customers.

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