Walgreens announces record sales and earnings for Q1 2008

DEERFIELD, Ill. Walgreens Friday announced record sales and earnings for the first quarter of fiscal year 2008. Net earnings for the quarter ended Nov. 30 were up 5.5 percent to $456 million or 46 cents per share, from $432 million or 43 cents per share for the year-ago quarter.

Sales for the first quarter increased 10.4 percent to a record $14.0 billion. The company reported total sales in comparable stores—those open more than a year—were up 5.4 percent in the quarter, while front-end comparable drugstore sales rose 4.6 percent in the quarter.

A year ago, Walgreens posted a 24.9 percent earnings increase, in part due to the generic introductions of such blockbuster drugs as Zocor and Zoloft—as well as an increased number of pharmacy patients participating in the then-new Medicare Part D plan. To counter such a large gain, the company this year focused on expense-management, including store salaries. “We brought stronger expense discipline into play across the company, while making investments that will build and enhance our competitive position,” said Walgreens chairman and chief executive officer Jeffrey Rein.

Prescription sales climbed 11.1 percent, accounting for 66.1 percent of sales in the quarter— sales in comparable stores rose 5.9 percent in the quarter—while the number of prescriptions filled in comparable stores increased 3.7 percent. Third party plans now account for 95.1 percent of all prescription sales.

Selling, general and administrative expense dollars in the current quarter increased 9.5 percent over last year’s first quarter, less than the 10.4 percent sales increase. Meanwhile, gross profit dollars increased 9.3 percent in the quarter, slower than the year-ago quarter’s 19.1 percent (aided by generic drug introductions). “Our store managers and corporate folks did an excellent job of controlling expenses this quarter,” Rein said. “We also improved advertising efficiencies while maintaining our weekly sales promotions at a comparable level.”

Walgreens opened a first-quarter record 169 new stores—including its 6,000th location, in New Orleans, and its first Hawaii store—compared to 143 store openings in the year-ago quarter, for a net increase of 142 stores after relocations and closings. The company plans to open 550 new stores during fiscal 2008, for a net increase after relocations and closings of more than 475 stores. At Nov. 30, Walgreens operated 6,139 stores in 49 states and Puerto Rico, including 76 Happy Harry’s stores in Delaware and surrounding states. “We’ve built a remarkable record of successful organic growth over the last 10 years, building more than 4,400 drug stores from the ground up while closing only six because of poor sales,” said Rein.

“To meet the growing needs of an aging population, we are targeting store expansion that will increase our square footage at a rate of about 8 percent per year through fiscal 2009 and beyond. We’ll exceed our goal of operating 7,000 stores in 2010, and we see long-term potential for approximately 13,000 stores in the U.S.” Since 2004, the company reported, its share of the retail prescription market has increased from 14 percent to more than 17 percent today.

Walgreens increased its front-end sales market share during the most recently reported 52-week period in 59 of its top 60 product categories compared to food, drug and mass merchandise competitors, as measured by A.C. Nielsen. “We’re seeing especially strong sales among our private-brand products as the economy softens and consumers search for more value,” said Walgreens president Gregory Wasson.

Walgreens announced earlier this week the expansion of its Take Care Health Clinics, walk-in health care centers staffed by nationally certified and state licensed nurse practitioners and physician assistants, into the Cleveland area. Take Care Health Systems, a wholly owned subsidiary of Walgreens, manages 119 convenient care clinics inside Walgreens stores in 15 cities across 11 states.

More than 400 Take Care Health Clinics are expected to be in operation by the end of calendar 2008. “Not only do these clinics reduce health care costs, provide greater access to the health care system and bring new patients into our stores, they also will be our platform for additional health care services such as immunizations and wellness programs,” Wasson said. “Our prime locations provide 6,000 points of care – our biggest asset and one that can’t be easily replicated. For us, the sweet spot for future growth is where health care needs converge with these convenient locations.”