10/25/2014

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Business

Drugstore chain Walgreen's 1st quarter profit jumps 68 percent

Drugstore chain Walgreen's 1st quarter profit jumps 68 percent
People pass the Walgreens store in New York's Times Square.
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Walgreen's fiscal first-quarter earnings soared 68 percent as investments in other companies paid off for the nation's largest drugstore chain, but a slowdown in generic drug introductions helped squeeze profitability.

The Deerfield Ill., company said Friday that it booked a total of $376 million in income during the quarter that ended Nov. 30 from its stakes in European health and beauty retailer Alliance Boots and U.S. pharmaceutical wholesaler AmerisourceBergen Corp.

Last year, Walgreen Co. acquired a 45 percent stake in Alliance Boots, which runs the largest drugstore chain in the United Kingdom, and it has an option to buy the rest of the company in 2015. Earlier this year, it also bought an ownership stake in AmerisourceBergen and entered a supply agreement with the company.

Analysts have said they like the potential for growth that these deals give Walgreen, which runs 8,200 drugstores.

Overall, Walgreen earned $695 million, or 72 cents per share, in a fiscal first-quarter performance that matched analyst expectations. That was up from $413 million, or 43 cents per share, a year ago, when the company absorbed Alliance Boots deal charges and took a $24 million hit after Superstorm Sandy forced it to temporarily close hundreds of stores.

Revenue climbed 6 percent to $18.33 billion, while analysts forecast $18.35 billion, according to FactSet.

Walgreen said prescription sales at stores open at least a year jumped 7.2 percent in the quarter, while sales from the front end, or the store areas outside its pharmacy, climbed 2.4 percent. Revenue from established stores is a key indicator of a retailer's health, because it excludes the impact from recently opened or closed stores.

CEO Greg Wasson told analysts during a Friday morning conference call that Walgreen has administered 1.1 million more flu shots than it did last year, despite a slow start to the cough, cold and flu season. He said that will help the company's non-flu vaccine program.

"We continue to see tremendous potential to grow our share of this $7.4 billion market," he said

The drugstore chain's pharmacy business benefited last year from a wave of new generic drugs, which hurt revenue but help profit. The company didn't see the same wave this year and that, along with increased promotions, pushed its profit as a percentage of sales down slightly to 28.1 percent.

"We are continuing to see a value-conscious consumer and the impact of a soft economy," Wasson said.

He said the company hopes to make better use in future promotions of information it gets on customer buying habits from its Balance Rewards program, which Walgreen started last year. The customer loyalty program allows shoppers to gain points at both Walgreen and Duane Reade stores and for online purchases that translate into cash rewards they can then use at the stores.

Walgreen shares climbed 50 cents to $57.44 Friday morning while the Standard & Poor's 500 index also rose slightly. The stock was up 54 percent so far this year through Thursday.

The shares have set new all-time high prices several times in 2013, according to FactSet.
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