By
Timothy M. Otte
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January 4, 2008
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The three major drugstore chains reported December sales yesterday. Walgreen (NYSE: WAG ) , CVS (NYSE: CVS ) , and Rite Aid (NYSE: RAD ) all bellied up to the bar with less-than-stellar sales results for the final month of 2007. How bad were they?
CVS and Walgreen hovered around 2% comps, while Rite Aid dipped slightly negative. The real story is comparing December numbers to prior trends, in this case, looking at the prior two months. All three companies were short of where they've been trending recently.
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Comparable Sales
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Company
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Dec.
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Nov.
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Oct.
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CVS
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1.8%
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4.4%
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4.6%
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Walgreen
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2.6%
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4.4%
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6.9%
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Rite Aid
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(0.5%)
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0.9%
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0.4%
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This is certainly not a disaster for these companies, although the financial press made a lot of noise about it, driving drugstore shares sharply lower. CVS is down nearly 6%, Walgreens has fallen about 9%, and Rite Aid has plunged 24% in the past few days. CVS even mentioned in its sales release that it expects full-year earnings near the top of previous guidance, and it ended the year posting 5.3% comps for 2007 over 2006. It's rare for these companies to give anything but the bare facts in sales releases.
Keep in mind that while retailers like Wal-Mart (NYSE: WMT ) and Target (NYSE: TGT ) benefit from holiday shopping in December, drugstore sales are driven by prescriptions, which bring traffic to the front end. And then there's flu season, which is getting off to a slow start. While this sounds like a blessing, drugstores do better when most of us are sniffling and sneezing.
My crystal ball hasn't given me any clues recently as to whether this will be a good or bad flu season, but it seems likely a normal amount of us will get to feeling under the weather at some point -- just a little later in the season. CVS and Walgreen in particular have been on a tear the past year or so. What looks like a few days of market overreaction may turn into a buying opportunity for savvy retail investors.
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