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Costs impact Walgreens' 3Q profit, despite strong sales
June 23rd, 2009
Greg Wasson, Walgreens CEO
DEERFIELD, Ill. – Walgreen Co. reported robust sales gains for its fiscal 2009 third quarter, yet costs related to its company and store realignment initiatives hurt profit.
Earnings for the quarter ended May 31 came in at $522 million, or 53 cents per diluted share, down 8.8% from $572 million, or 58 cents per diluted share, a year earlier. Wall Street had forecast the drug chain's earnings at 56 cents per share for the quarter.
Walgreens said the earnings results reflect an impact of 6 cents in costs and 6 cents in savings associated with its Rewiring for Growth and Customer Centric Retailing (CCR) efforts.
Third quarter sales rose 8% year over year to a record $16.2 billion, according to the company. Comparable-store sales edged up 2.8% percent in the quarter, including a 0.9% gain at the front end.
Prescription revenue climbed 8.2% in the quarter, with comparable-store prescription sales rising 3.8%. Walgreens said it filled 8.3% more prescriptions in the quarter versus a year ago, including a benefit of 1.4 percentage points from more patients filling 90-day prescriptions, which are counted as three 30-day prescriptions.
Gross profit margin declined 0.8 percentage points from the year-ago quarter to 27.5 as a percent of sales. Cash flow from operations in the quarter increased 54% year over year to $1.5 billion, mainly due to improved inventory management, the company said.
“We’re generating strong cash flow despite the ongoing challenging economic climate,” Walgreens president and chief executive officer Greg Wasson said in a statement.
During the quarter, Walgreens opened 162 new drug stores, compared with 45 in second quarter and 122 in the fiscal 2008 third quarter. Also, the chain rolled out its new CCR format to 35 pilot stores, which the company said are performing ahead of plan. In addition, optimized assortment resets were completed for nearly 40 product categories nationwide.
As of May 31, Walgreens operated 6,857 drug stores in 49 states, the District of Columbia, Puerto Rico and Guam.
The company said the Rewiring for Growth initiative is on pace to reach $1 billion in annual cost reductions and productivity gains beginning in 2011.
“We’re executing on our key initiatives, and we’re encouraged by early results on several recently launched programs, including our CCR and Rewire initiatives,” Wasson commented.
“Our priority remains driving long-term growth through prudent investments in our core and emerging businesses,” he added. “We are well-positioned to emerge from the current recession even stronger than we entered it.”
MORE WALGREENS COVERAGE:
Walgreens bolsters purchasing team
May same-store sales edge up at Walgreens
Walgreens enlists HealthVault for online Rx histories
Walgreens to exit Delaware Medicaid program