Walgreens 4th quarter profits fall 4 percent
Walgreen Co., one of the nation's biggest drugstore chains, said Monday its fourth-quarter profit dropped nearly 4 percent, falling short of Wall Street forecasts because of lower reimbursements for some popular generic drugs and increased store and staff costs.
The results Ȣ₈¬Ã¢â‚¬ˆť the company's first earnings dip in nearly a decade Ȣ₈¬Ã¢â‚¬ˆť sent its shares skidding more than 13 percent in morning trading.
Net income for the Deerfield-based company slipped to $396.5 million, or 40 cents per share for the three months ending Aug. 31 compared to earnings of $412.3 million, or 41 cents per share, a year ago.
The last time the company saw its earnings decrease was early in the 1998 fiscal year.
Meanwhile, executives warned trouble could persist.
"Many of the challenges we faced in this quarter will continue, including comparisons to last year's blockbuster generics," said Rick Hans, the company's director of finance.
Particularly vexing to Walgreen is growing use of simvastatin, a generic version of the popular cholesterol drug Zocor. Since the generic medication came in the market last summer, reimbursement rates from insurance plans have sagged.
Reimbursement rates are typically highest when a generic drug first hits store shelves and gradually falls as more companies manufacture the medicine and lower their prices.
Walgreen said it filled nearly three times the simvastatin prescriptions during the fourth quarter as it did last year. But the company made virtually the same amount of money selling the drug.
"As we dispense more generic drugs, they slow our pharmacy sales increases because of their lower price," Hans said.
Still, quarterly revenue rose more than 10 percent to $13.4 billion from $12.2 billion.
Analysts polled by Thomson Financial expected earnings of 47 cents per share and revenue of $13.5 billion.
Total expenses climbed more than 11 percent to $12.8 billion, which Chairman Jeffrey A. Rein said was out of line with reimbursements the company received.
"Managing both expenses and lower reimbursements on some generic drugs is my top priority," he said in a statement. "We're going to fix this, and at the same time continue our aggressive growth plan."
The company said it has begun a "rigorous review" of its expenses as it tries to control costs.
Walgreen, which already fills about 17 percent of the nation's retail prescriptions and is the country's biggest pharmacy chain by revenue, plans to operate more than 7,000 stores by 2010. At the end of August, Walgreen operated 5,997 stores, a net gain of 536 stores.
Meanwhile, Walgreen said its same-store sales grew 6.3 percent during the fourth-quarter. Comparable prescription sales grew 6.5 percent. Same-store sales of other non-pharmacy items grew 6.1 percent. Overall, prescription sales accounted for nearly two-thirds of the company's business.
Same-store sales are considered to be an important measurement of retail performance because it tracks growth from established stores rather than growth from newly opened ones.
For the year, earnings increased to $2.04 billion, or $2.03 per share, compared with $1.75 billion, or $1.72 per share.
Full-year sales grew to $53.8 billion from $47.4 billion.
Walgreen shares fell $6.41, or 13.6 percent, to $40.83 in morning trading Monday.
Ȣ₈¬Ã¢â‚¬ˆťÃƒˆ¢Ã¢â€šˆ¬Ã¢â‚¬ˆťÃƒˆ¢Ã¢â€šˆ¬Ã¢â‚¬ˆť
On the Net:
www.walgreens.com