Walgreen 4Q profit falls, but results top forecast

NEW YORK -- Drugstore operator Walgreen Co. said prescription drug sales rose in the fiscal fourth quarter, pushing the company's results past Wall Street expectations and lifting shares to an annual high.

The Deerfield company said its "Rewiring for Growth" savings plan started to pay off during the quarter, and also indicated the effects of the recession may be easing. Walgreen shares climbed to an annual high on the results. The shares jumped $3.16, or 9.2 percent, to $37.35 in Tuesday trading and peaked at $38.44.

For the quarter ended Aug. 31, Walgreen's profit fell 2 percent, to $436 million, or 44 cents per share, down from profit of $443 million, or 45 cents per share, a year prior. Revenue rose 8 percent to $15.7 billion from $14.6 billion. The latest per-share results include 7 cents in savings from Rewiring for Growth, offset by 3 cents in costs.

Thomson Reuters says analyst forecast profit of 39 cents per share on revenue of $15.68 billion, on average.

Same-store sales, or sales at stores open for more than a year, rose 2.4 percent. Walgreen opened its 7,000th store in September and currently runs 7,042 drugstores, a few dozen more than rival CVS Caremark Corp. It also has hundreds of walk-in retail clinics, specialty pharmacies, and work site health centers.

Same-pharmacy sales rose 4.5 percent in stores open at least a year, while same-store sales of "front end" nonpharmacy items fell 1.4 percent. The company filled 9 percent more prescriptions than it had a year ago. While consumers are still looking for ways to save money, Walgreen said fewer customers are splitting pills or skipping doses of medication.

Deutsche Bank analyst Bill Dreher said profit margins were stronger than he expected due to increased prescriptions for generic drugs, although discounts and weaker front end sales canceled out some of that improvement.

The company also said patients who receive 90-day orders of prescription drugs through the mail will also be able to pick up their orders at Walgreen pharmacies. CVS Caremark has a similar program.

For the full year, Walgreen earned $2 billion, or $2.02 per share, down from profit of $2.16 billion, or $2.17 per share, in 2008. Revenue rose to $63.34 billion from $59.03 billion.

The company is looking to save money by cutting back on store openings and carrying fewer products, and boost sales by improving the layout of its stores. Walgreen said it plans to start selling beer and wine at stores over the next year to 18 months, and the company is rolling out its Customer Centric Retailing initiative at 400 stores in Texas.

Wasson said stores that are remodeled under Customer Centric Retailing have better sightlines and are better looking, and the company thinks sales will improve at those locations.

Walgreen expects store growth of 4.5 percent to 5 percent in fiscal 2010, which would give it more than 7,300 stores.