Is the regional Longs Drug Stores
Longs Drug operates primarily on the West Coast, so Foolish readers may not be as familiar with the company as with national brethren Walgreen
The second quarter suggests that Longs is doing pretty well indeed in its regional niche. Income from continuing operations rose 33%, to $0.67 a share. Margins continued expanding, too, thanks in part to a distribution facility, opened last year, that lets the company self-distribute more front-end merchandise and operate more efficiently overall. Gross margins improved 100 basis points to 26.3%, as the company sells goods with higher profitability, including generic drugs.
Longs does have work to do to improve its top line, which increased by just 3%. Same- store sales climbed 1%, with pharmacy same-store sales increasing 1.8% and front-end same-store sales rising by a tiny 0.3%. The company is disposing of underperforming stores and remodeling others, so it might not be long before we see the results of the facelift. Management expects total revenue to increase 5% to 7% for the year.
Through better merchandising and continued inventory management improvements, margins should continue to expand. And if these steps improve sales, we could really see earnings take off from this little guy flying under the radar. It will be a bitter pill to swallow if you're on the short side of things.
Wal-Mart is a Motley Fool Inside Value recommendation.
Find the diamonds in the rough before the market catches on! Try out our market-beating small-cap service, Motley Fool Hidden Gems, free for 30 days.
Fool contributor Larry Rothman is happy to receive feedback, and he promises to read it when he's not being wrestled by his three children. Feel free to email him at [email protected]. He doesn't have any positions in the companies mentioned.
