Walgreen Company and CVS Corporation operate national chains of drugstores that sell prescription drugs, over-the-counter drugs, and other general merchandise such as greeting cards, beauty and cosmetics, household items, food, and beverages. Walgreen operates 4,579 stores, while CVS Corporation operates 5,375 stores. The following operating data (in thousands) were adapted from the 2004 SEC 10-K filings of Walgreen and CVS.
|
|
CVS
|
Walgreen
|
|
Net sales
|
$30,594,300
|
$37,508,200
|
|
Cost of sales
|
22,563,100
|
27,310,400
|
|
Gross profit
|
$ 8,031,200
|
$10,197,800
|
|
Selling, general, and administrative expenses
|
6,079,700
|
8,055,100
|
|
Operating income
|
$ 1,951,500
|
$ 2,142,700
|
|
Other income and (expense)
|
(555,100)
|
33,600
|
|
Income before taxes
|
$ 1,396,400
|
$ 2,176,300
|
|
Income taxes
|
477,600
|
816,100
|
|
Net income
|
$ 918,800
|
$ 1,360,200
|
1. Prepare common-sized income statements for CVS and Walgreen.
2. Compute the average sales per store for CVS and Walgreen. Round to the thousands.
3. Analyze and comment on your results in (1) and (2).
4. Broker recommendations are reported on Yahoo.com's financial Web site. The recommen- dations are ranked as follows:
Strong Buy 1
Buy 2
Hold 3
Sell 4
Strong Sell 5
Based upon your answers to (2) and (3), would you expect the average broker recommen- dation for CVS to be higher (less favorable), the same, or lower (more favorable) than for Walgreen? Compare your assessment with the average broker recommendation on Yahoo.com's financial Web site (https://finance.yahoo.com/). To find the broker recommendation, enter the stock symbols for CVS (CVS) and Walgreen (WAG) and click on "re- search."