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 approximately 3,600 stores, while CVS Corporation operates approximately 4,200 stores. The following operating data (in thousands) were adapted from the 2001 SEC 10-K filings of Walgreen and CVS.

 

CVS

Walgreen

Net sales

$22,241,400

$24,623,000

Cost of sales

16,550,400

18,048,900

Gross profit

$ 5,691,000

$ 6,574,100

Selling, general, and administrative expenses

4,920,400

5,175,800

Operating income

$ 770,600

$ 1,398,300

Other income and expense

(61,000)

24,400

Income before taxes

$ 709,600

$ 1,422,700

Income taxes

296,400

537,100

Net income

$ 413,200

$ 885,600

 1. Prepare common-sized income statements for CVS and Walgreen.

2. Compute the average sales per store for CVS and Walgreen. Round to thousands.

3. Analyze and comment on your results in (1) and (2).

Strong Buy Buy Hold

1 2 3

Sell

4

Strong Sell

5

Based upon your answer to (3), would you expect that the average broker recommendation for CVS to be higher (less favorable) or lower (more favorable) than for Walgreen? Compare your assessment with the average broker recommendation on financial. To find the broker recommendation, enter the stock symbols for CVS (CVS) and Walgreen (WAG) and click on “research.” Appendix C at the end of the text provides more details about using Yahoo Finance for research.