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Walgreens posts profit surge in 1Q

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DEERFIELD, Ill. — A strong operational performance fueled a nearly 19% gain in earnings in the fiscal 2011 first quarter at Walgreen Co., exceeding analysts’ per-share profit forecast by 8 cents.

A strong operational performance fueled a nearly 19% gain in earnings in the fiscal 2011 first quarter at Walgreen Co., exceeding analysts’ per-share profit forecast by 8 cents.

Same-store sales in the quarter, however, edged up less than 1% year over year, despite a 6% increase in total revenue.

The drug store chain said Wednesday that net earnings for the first quarter ended Nov. 30 rose to $580 million, or 62 cents per diluted share, from $489 million, or 49 cents per diluted share, a year earlier. Analysts, on average, projected earnings of 54 cents per share, with their forecast ranging from a low of 50 cents to a high of 57 cents.

Walgreens noted that earnings in the prior-year quarter include the impact of 3 cents per diluted share in restructuring and related costs from its Rewiring for Growth initiative.

"We’re very pleased to report strong earnings growth this quarter," Walgreens president and chief executive officer Greg Wasson said in a statement. "Our performance was driven by our continued focus on gross profit margins, cost control and the strategic slowing of our new store openings. As a result of improved merchandising, including promotions and pricing, we saw significant increases in gross profit margins in the front end. We also generated $1.2 billion in cash flow from operations, reflecting our overall strong drug store performance."

In the first quarter, total sales climbed to $17.34 billion from $16.36 billion a year earlier. Overall comparable-store sales, which exclude Duane Reade, were up 0.8%, reflecting gains of 0.4% in the front end and 0.9% in the pharmacy.

Walgreens said that during the quarter it filled 202 million prescriptions, up 4.6% versus the fiscal 2010 quarter, including 0.8 percentage point from more patients filling 90-day prescriptions. The company reported that over the same period it exceeded the industrywide prescription growth rate (excluding Walgreens) by 2.6 percentage points, as reported by IMS Health. The chain said it also expanded its retail prescription market share 40 basis points from a year ago to 19.7%.

Through the close of the first quarter, flu shots administered at pharmacies and clinics this flu season ttotaled 5.6 million, slightly more than the year-ago period, according to Walgreens.

"While it remains to be seen how the flu shot season will ultimately play out, through the strong support of our vendors and an inventory write-off of 2 cents per diluted share this quarter, we face minimal inventory risk for the remainder of the season," Wasson stated. "Today, outside of the federal government, Walgreens is providing more flu shot immunizations than any other single entity in the country. And despite fewer Americans getting flu shots this year as a result of a slow start to the season, we’re pleased to have immunized more people through the end of the first quarter compared with a year ago, when a separate H1N1 flu shot also was needed."

Gross profit margins in the first quarter increased 80 basis points year over year to 28.5%. Walgreens said front-end margins benefited from better promotions and pricing, plus fewer inventory write-downs versus a year ago. Pharmacy margins slightly increased with the positive impact of generic drug sales, partially offset by market reimbursements.

Walgreens added that as it enters the final year of its Rewiring for Growth restructuring effort, the company is on course to realize its goal of $1 billion in savings in fiscal 2011.

"We continue to make solid progress on our key initiatives," Wasson commented. "Our performance during the fiscal second quarter is typically driven by Christmas sales and the cold/flu season, which are difficult to predict. In addition, persistent high unemployment makes this a challenging retail environment during the holiday season.

"December sales once again will be largely influenced by the final days, which makes this an important week," he said. "With the convenience of our 7,600 stores open Christmas Eve and Christmas Day, we’re an ideal destination for last-minute shopping needs."

In the first quarter, Walgreens opened or acquired 121 new drug stores, a net gain of 89 after relocations and closings, compared with 172, a net gain of 150, in the prior-year quarter. The company said it expects organic store growth of 2.5% to 3% in 2011.

As of Nov. 30, Walgreens operated 7,651 drug stores nationwide, including 122 hospital on-site pharmacies.


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