Walgreen’s 1Q profits up 19%

By Bruce Japsen
Posted Dec. 22, 2010 at 7:25 a.m.

Amid a tough economy, Walgreens first-quarter profits jumped nearly 19 percent in its first quarter thanks to intensifying cost controls such as slowing store expansions. The results, which beat analysts’ expectations, come even as the Deerfield-based drugstore giant’s sales at stores open at least a year grew less than one percent in the period ended Nov. 30.

Walgreens, which generates nearly two-thirds of its total revenue from prescriptions, said total sales rose 6 percent to $17.3 billion for the company’s first quarter ended Nov. 30. The company had $16.4 billion in sales in the year-ago quarter.

The solid results for the pharmacy giant in a sick economy pleased investors. The price of Walgreens shares soared 8 percent this morning or $2.90 a share to $39.73 in trading on the New York Stock Exchange. It is a new 52-week high for the company.

Net earnings rose nearly 19 percent to $580 million, or 62 cents a share, compared to $489 million, or 49 cents in the first quarter of 2009. The company handily beat a 54-cent-per share earnings estimate by analysts polled by Thomson Reuters.

Walgreens president and chief executive officer Greg Wasson credited the results to the company’s “focus on gross profit margins, cost control and the strategic slowing of our new store openings.”

The company said it opened or acquired 121 new stores in the quarter compared with 172 stores in the same period a year earlier.

Looking ahead, Wasson told Wall Street analysts on a conference call this morning that he could not promise continued growth given high unemployment and increased pricing pressures the company faces from state governments looking to cut their budgets.

To be sure, states like Illinois and others have massive multi-billion-dollar budget shortfalls and are looking at ways to save money and cut costs in their Medicaid health insurance programs for the poor, which help pay for prescription drugs and other medical costs.

“Our performance during the fiscal second quarter is typically driven by Christmas sales and the cold/flu season, which are difficult to predict,” Wasson said. “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.”


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