Walgreen’s 4th-quarter profit rises 8 percent as drug sales increase and chain expands

Tuesday, September 28, 2010

Walgreen 4Q profit rises and tops estimates

NEW YORK — Walgreen Co., the largest drugstore chain in the U.S., said Tuesday its profit rose 8 percent in the fiscal fourth quarter as it boosted sales by adding more than 500 stores.

Walgreen shares jumped more than 11 percent as the results easily surpassed analyst expectations. The shares are on pace for their largest single-day gain in a year.

Walgreen said prescription drug sales improved, and sales of other items like cosmetics and food were more profitable because of better prices and successful promotions. Sales of “front end” or nonpharmacy items have been hurt by the weak economy as shoppers have cut back on their spending.

The company said the beginning of flu shot season has been brisk. Since the middle of August it has administered more than 2 million flu shots and sprays. Many of those sales are not included in its fourth-quarter results since the period ended Aug. 31, but Walgreen said it is aiming to sell 15 million flu shots over the winter months. That’s more than twice the 7 million shots it sold in 2009-10.

The Deerfield, Ill., company reported net income of $470 million, or 49 cents per share, for the quarter. That’s up from $436 million, or 44 cents per share, a year earlier. Analysts on average expected earnings of 44 cents per share, according to a Thomson Reuters poll.

Walgreen shares rose $3.46, or 11.4 percent, to close at $33.81.

Raymond James analyst John Ransom said most investors had expected Walgreen to fall short of the consensus estimate.

“Overall, fourth-quarter results were well ahead of depressed expectations (as most investors expected an earnings miss),” he wrote in a note to clients. Ransom said Walgreen’s gross margins were better than expected, and the savings from the company’s restructuring plan canceled out its spending on new stores and the Duane Reade acquisition as well as weak revenue.

The company’s results included 4 cents per share in expenses related to the purchase of Duane Reade, which closed in April and brought the company 258 stores. It reported a penny per share in costs from its restructuring plan, from which it aims to save $1 billion per year.

Revenue rose 7 percent to $16.87 billion from $15.7 billion as the company continued to expand, also topping analysts’ $16.84 billion average estimate.

Revenue at stores open at least a year rose 1.5 percent during the quarter, while prescription revenue at those stores rose 1.6 percent. Those comparisons are considered an important measurement of retailer health because they exclude results from stores the company opened, acquired or closed over the previous year.

Walgreen runs 7,561 drugstores in all 50 states, Washington, D.C., and Puerto Rico, up sharply from 6,997 retail stores a year ago. However, the company plans to slow down the pace of store openings in the current fiscal year. Walgreen has said it will raise its store count by 2.5 percent to 3 percent in fiscal 2011. If it sticks to that total, it would have around 7,750 to 7,790 stores. By comparison, rival CVS Caremark Corp. operates about 7,100 stores.

The company said it has remodeled and simplified product lines at more than 1,800 stores in a plan that is designed to boost sales of non-pharmacy items and save money. It plans to renovate about 5,500 stores with the changes costing about $50,000 per store. Walgreen is also selling beer and wine at about 4,200 locations and expects to sell liquor at more than 5,000 stores by the end of this year.

For the full fiscal year, Walgreen reported net income of $2.09 billion, or $2.12 per share, up from $2.01 billion, or $2.02 per share, a year earlier. Revenue rose to $67.42 billion from $63.34 billion.


Associated Press Writer Damian Troise in New York contributed to this story.

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