Walgreen Co. (WAG) posted a 1.6% drop in fiscal fourth-quarter
profit as sluggish front-end sales offset growth in revenue and
prescription sales.
Shares rose 3% to $35.25 in premarket trading as earnings topped
analysts' expectations. The stock through Monday's close is up 39%
this year as the nation's largest drugstore chain is working to
bounce back from retail weakness as sales of non-pharmacy items lag
improved sales in its pharmacy unit. The troubles have been seen at
rivals as well.
Meanwhile, Walgreen has scaled back expansion, is rolling out a
more streamlined store format and will supply prescription drugs
directly to Caterpillar Inc. (CAT) workers and retirees starting
next year. Meanwhile, drugstores are expected to benefit from a
cold-weather return of the H1N1 virus in the U.S.
For the period ended Aug. 31, Walgreen's profit fell to $436
million, or 44 cents a share, from $443 million, or 45 cents a
share, a year earlier. The results included gains of 4 cents and 5
cents, respectively.
Net sales rose 7.6% to a company-record $15.7 billion, as
same-store sales increased 2.4%. They fell 1.4% at the front end
and climbed 4.5% at the pharmacy.
Analysts polled by Thomson Reuters were expecting earnings,
excluding items, of 39 cents a share on revenue of $15.68
billion.
Gross margin rose to 27.7% from 27.6% on stronger retail
pharmacy margins, helped by increased generic-drug sales.
Non-retail operations and added inventory costs, however, held down
the margin rise. Walgreen also manages workplace
health-and-wellness centers.
Prescription sales, which accounted for two-thirds of sales,
increased 9% overall.
Drugstore chains' promotion of discount drug programs have
helped reduce prices and led to greater use of generic drugs.
Walgreen's prescription sales growth comes on the heels of rival
CVS Caremark Corp.'s (CVS) statement in August that it saw no
recession in its prescription-drug business.
Walgreen said it opened 149 new drugstores during the quarter,
compared with 162 in the third quarter and 199 a year ago. It said
it expects organic store growth of 4.5% and 5% in the new fiscal
year, and 2.5% to 3% thereafter.
-By Mike Barris, Dow Jones Newswires; 212-416-2330;
mike.barris@dowjones.com
