Walgreens notes 'solid, double-digit earnings growth'

DEERFIELD, Ill. In what could signal a continuing rebound in consumer spending and a healthier retail climate, Walgreens Monday reported its net earnings soared 19.6% in the first quarter of fiscal 2010. Same-store sales also showed clear signs of strength in the period ended Nov. 30.

Net income hit a record $489 million, or 49 cents per diluted share. That includes a charge of 3 cents per share in restructuring and related costs associated with the company’s “Rewiring for Growth” initiative, Walgreens reported. First-quarter sales increased 9.5 % from the prior-year quarter to $16.4 billion.

Comparable-store sales rose 4.9% in the quarter — a respectable gain in the current economic climate — with front-end same-store sales up 2.7%.

“We’re extremely pleased to report solid, double-digit earnings growth,” said Walgreens president and CEO Greg Wasson. “We remain confident we can continue to generate strong cash flow, which provides us the financial strength and flexibility to continue investments in our core strategies while returning cash to shareholders.”

Prescription sales, which accounted for 66.2% of sales in the quarter, climbed 10% overall and 6.1% on a comp-store basis. Driving that growth was a 12% jump in the number of prescriptions filled by Walgreens pharmacists in first-quarter 2010, compared with the same period a year ago. “The company exceeded by 5.5 percentage points the industry-wide prescription growth rate, excluding Walgreens, during the same period as reported by IMS Health,” Walgreens noted.

Wasson credited an early flu season and “a well-executed flu shot campaign that launched Sept. 1, a month earlier than last year,” for some of the pharmacy and front-end gains in September, October and, to a lesser extent, November.

In September, the company launched its largest flu shot campaign in history, administering more than 5 million shots by the end of November compared with 1.2 million in the entire previous flu season. The program attracted “many new patients” to Walgreens pharmacies, the company noted, as two-thirds of flu shot recipients hadn’t filled a prescription at Walgreens in the last six months.

“Our seasonal flu shot program was one of the best-executed initiatives in my 30 years at Walgreens,” said Wasson. “We see big opportunities to deliver preventive services including pharmacist-delivered immunizations and vaccinations as we continue to expand our capabilities in this area.”

“The calendar works in our favor this year, with Christmas falling on a Friday. That means the convenience of our more than 7,100 stores makes us an ideal destination for last-minute shopping needs,” he added.

Wasson said Walgreens continues to focus on three core strategies in fiscal 2010: Leveraging its 50-state network of drug stores, clinics and corporate pharmacies, enhancing customer satisfaction and driving cost reductions and productivity gains.

On the expansion front, Walgreens opened or acquired 172 new drug stores in the first quarter, for a net gain of 150 units after relocations and closings. Walgreens expects organic store growth of between 4.5% and 5% in fiscal 2010 and between 2.5% and 3% annually beginning in 2011.

In October, Walgreens announced the acquisition of certain assets from 12 Eaton Apothecary pharmacies in the Boston area. The transaction, expected to close in January, is an example of the company’s market share growth opportunities through targeted acquisitions.

Walgreens also completed the rollout of its CCR format in 400 stores in Texas during the quarter.

“Customer response to the initiative, designed to improve the overall shopping experience and increase both the number of customer visits and basket size, has been positive,” Walgreens noted.

The company is also adding its new beer and wine selection to most stores and now has nearly 1,600 stores with the products.

“We approach the coming year confident in our strategies and cautious about the economy,” said Wasson. “Despite ongoing economic challenges, our strong balance sheet and unparalleled network of locations and services position us for continued growth. We’ll continue to execute our strategies in order to drive sales, accelerate earnings and deliver strong cash flow.”

As of Nov. 30, Walgreens operated 7,649 locations in all 50 states, the District of Columbia, Puerto Rico and Guam. That includes 7,147 drug stores, as well as worksite health centers, home care facilities and specialty, institutional and mail service pharmacies. Its Take Care Health Systems subsidiary manages more than 700 in-store clinics and worksite health-and-wellness centers.