Deerfield-based Walgreen Co., the largest drugstore operator in the U.S., said Wednesday that its profit jumped 18.8 percent in the fiscal first quarter on a mix of better pricing and generic drug sales. | AP
Updated: December 22, 2010 4:13PM
NEW YORK (AP) — Walgreen Co. said Wednesday that its net income jumped 19 percent in the fiscal first quarter as thousands of newly renovated stores and more successful promotions boosted sales at the largest drugstore operator in the U.S.
Over the past few years, Walgreen has spent hundreds of millions of dollars remodeling its stores in order to improve sales and reduce inventory costs. After months of uneven results, Wednesday’s results indicated the company’s plans may be paying off. Walgreen shares soared as high as $40.20 Wednesday, the stock’s highest price since October 2009.
The Deerfield, Ill., company said net income rose to $580 million, or 62 cents per share, from $489 million, or 49 cents per share. Revenue rose 6 percent to $17.34 billion from $16.36 billion.
Analysts surveyed by Thomson Reuters expected a profit of 54 cents per share on revenue of $17.31 billion, on average.
Write-downs decreased sharply. Walgreen reported $1 million in write-downs related to the Customer Centric Retailing plans in its latest quarter, a fraction of the $28 million recorded a year ago. Besides renovating stores, the company is also simplifying product assortments and adding new products such as wine and beer.
The company also boosted its results by buying back $510 million in stock during the quarter. That helped reduce its shares outstanding by 6 percent year over year and increase its per-share profit.
“We think the latest results offer some confirmation that Walgreen’s merchandising and cost-reduction initiatives are having the intended impact,” said analyst Ajay Jain of Hapoalim Securities.
Revenue at stores open at least a year rose 0.8 percent during the quarter, Walgreen said. Sales of front-end items like cosmetics were up 0.4 percent and pharmacy revenue grew 0.9 percent. Revenue at stores open at least a year is considered a key measurement of retailer health because it excludes results from stores that have been acquired, opened or closed over the last year from the comparison. The revenue figure excludes sales from the Duane Reade chain, which was acquired in April.
The company said front-end sales benefited from better promotions and pricing of products, while generic drug sales gave the pharmacy a boost. Gross profit margins improved by 80 basis points to 28.5 percent.
The company also administered about 5.6 million flu shots through Nov. 30, a slight increase from last year’s first quarter. Walgreen said it is the largest provider of flu shots in the U.S. except for the federal government.
Walgreen ran 7,651 stores as of Nov. 30. It has expanded by about 500 stores over the past year, with about half that growth from the Duane Reade purchase.
In midday trading, Walgreen shares rose $2.55, or 6.9 percent, to $39.38. The stock had traded between $26.26 and $37.95 over the last year.