Walgreen Company (WAG): Will This Retail Drugstore Chain Continue to Heat Up?

The drugstore retail market hasn’t pulled up despite the slow recovery of the U.S economy. Nonetheless, one of the leading drugstore chains, Walgreen Company (NYSE:WAG) has been making great strides in the stock market: The company’s stock rose by nearly 38% (year-to-date). Will its recent rally continue?

Healthcare sector sales are slowly rising

Based on the latest survey of the U.S Census Bureau, U.S retail sales rose by 0.6% during June compared to May and by 3.7% in the first six months of 2013. Moreover, the full report shows health and personal care stores’ sales rose slightly by 0.2% in June (month-over-month) and increased by 0.3% in the first half of 2013 compared to the first half of 2012. This means that healthcare retail sales are slowly rising and at a slower pace than total retail sales.

Walgreen Company (NYSE:WAG) has outperformed the retail-pharmacy market in terms of growth in revenue: The company’s revenue rose by 2.5% during June and in the first two quarters of 2013 its net sales increased by 1.5%. The company continues to expand its operations as it opened 207 drugstores during 2013 (up-to-date). If the company keeps outperforming the retail-pharmacy market, it may help to maintain its stock’s rally.

Rite Aid Corporation (NYSE:RAD) hasn’t done better than the market average, as its net sales fell by 6.4% in the past two quarters (year-over-year). Moreover, if the company’s revenue continues to fall at the current pace, Rite Aid won’t reach its annual outlook:  The company projects its revenue will be between $24.9 and $25.3 billion – this represents a drop in net sales of between 0.4% and 1.9%.

CVS Caremark Corporation (NYSE:CVS) wasn’t able to augment its revenue:  In the first quarter, its net sales inched down by 0.1%. Let’s turn to examine these companies’ profit margins and dividend payments.

Profitability and dividend

In terms of profit margins, Walgreen Company (NYSE:WAG), Rite Aid Corporation (NYSE:RAD) and CVS Caremark Corporation (NYSE:CVS) have improved their profitability:  Walgreen Company (NYSE:WAG)’s profit margin slightly rose from 4.9% to 5.4% in the quarter ending in May; Rite Aid’s profitability reached 1.5% in the recent quarter compared to a loss in the same quarter in 2012. CVS was able to increase its profitability by 21% to a profit margin of 5.5%. CVS’ profit margin is higher than Rite Aid Corporation (NYSE:RAD)’s profitability and close to the profit margin of Walgreen Company (NYSE:WAG).

Further, CVS Caremark Corporation (NYSE:CVS) still projects its net earnings will grow by 22% to 25% in 2013 compared to 2012. Considering CVS’ current progress, the company is on its way to reach this goal. This growth rate is likely to be met not due to higher sales but due to improving profit margins. According to the company, this increase in profitability is due to influx of new generic drugs to its stores.