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Restructuring costs dampen Walgreens earnings despite solid sales


DEERFIELD, Ill. Walgreens reported a 9% loss in third-quarter sales this year, despite having a strong cash flow from improved inventory management.

Net earnings for the quarter ended May 31, were $522 million, or 53 cents per share (diluted), including an impact of 6 cents in costs and 6 cents in savings associated with the company’s Rewiring for Growth and Customer Centric Retailing  initiatives. This reflects an 8.8% decrease from $572 million, or 58 cents per share (diluted), in the same quarter a year ago.

Excluding restructuring costs (6 cents per share), earnings would have been up slightly, roughly a penny per share.

Meanwhile, cash flow from operations for the quarter increased 54% over last year’s quarter to $1.5 billion.

“We’re generating strong cash flow, despite the ongoing challenging economic climate,” said Walgreens president and CEO Greg Wasson. “Our cash performance is a direct result of our strategies, creating a virtuous circle that allows us to invest back into those strategies and deliver value to shareholders.”

Walgreens said its same-store sales, or revenue from locations open at least one year, rose 2.8%. That includes growth of 3.8% in pharmacies, where Walgreens makes about two-thirds of its sales, and a decrease of 0.9% at the front-end of the stores.

During the quarter, Walgreens rolled out its new CCR format to 35 pilot stores, which are performing ahead of plan. In addition, optimized assortment resets were completed for nearly 40 product categories nationwide.

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,” said Wasson, “and we’re encouraged by early results on several recently launched programs, including our CCR and Rewire initiatives.”

Among other quarter highlights, the company acquired 40 drug stores, including 29 Drug Fair stores in central and western New Jersey and eight Rite Aid locations in San Francisco and eastern Idaho. It also acquired the home infusion and respiratory therapy operations of Pennsylvania-based Air Products Healthcare.

As of May 31, Walgreens operated 7,361 locations in 49 states, the District of Columbia, Puerto Rico and Guam. That includes 6,857 drug stores, as well as worksite health-and-wellness centers; home care facilities; and specialty, institutional and mail-service pharmacies. Its Take Care Health Systems subsidiary manages 716 in-store convenient care clinics and worksite health-and-wellness centers.

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