2nd UPDATE: Walgreen 3Q Profit Falls 8.7% On Falling Margins
22 Giugno 2009 - 5:28PM
Dow Jones News
Walgreen Co.'s (WAG) fiscal third-quarter earnings fell a
bigger-than-expected 8.7% on falling margins despite growth in
revenue and prescription sales.
The nation's largest drug store chain by revenue reported
same-store sales of non-pharmacy items only rose slightly as
recession-weary consumers continue to rein in spending.
"We continue to see consumers save more, use less credit and
spend closer to payday," President and Chief Executive Gregory
Wasson said in the company's earnings call. "This is challenging to
all retailers, including us, but we are well positioned to continue
to grow."
Raymond James analyst John Ransom said in a note that while
front-end same-store sales remain "relatively depressed" for
Walgreen, the company's same-store sales overall "have continued to
rebound off the trough lows witnessed in late 2008 and early 2009,"
primarily due to the recent rebound in prescription growth.
Shares of the drugstore chain were recently down 4% at
$30.15.
A pullback in consumer spending has exacerbated the pressure
drugstores have already felt from weaker prescription-drug sales
and increased competition. The chains' promotion of discount drug
programs has helped reduce prices and led to greater use of generic
drugs.
Walgreen, for its part, has been pulling back from its previous
break-neck growth, slowing store openings and cutting jobs.
Amid the recession, the company has also been putting a greater
emphasis on staples like groceries and pushing its own
private-label products. Wasson said in the earnings call that
Walgreen has seen a double-digit increase in its private-label
brand sales.
"Today's consumer is more value driven than in the past and this
may be a permanent shift," Wasson said in the call. "We're
positioning ourselves to be more relevant to the customer."
For the period ended May 31, Walgreen posted earnings of $522
million, or 53 cents a share, down from $572 million, or 58 cents,
a year earlier.
Net sales increased 8% to $16.21 billion, as same-store sales
rose 2.8%. Comparable store front-end sales increased 0.9%.
Analysts polled by Thomson Reuters expected earnings of 56 cents
a share on revenue of $16.17 billion.
The drugstore chain aims to trim its annual expenses by $1
billion starting in 2011, which is adding to its costs this
year.
Walgreen is also in the midst of a major transformation,
reducing the amount of products it carries and making stores easier
to shop through a program called "Customer Centric Retailing."
During the quarter, the company tested the new layout in 35 stores,
which it says are performing well.
Walgreen plans on retrofitting about 400 stores in the new
format by the fall, with a nationwide rollout expected throughout
calendar 2010, CEO Wasson said on the call.
For the fiscal third quarter, gross margin slid to 27.5% from
28.3% on results of nonretail operations and added inventory costs.
Among other businesses, Walgreen also manages workplace
health-and-wellness centers.
Prescription sales, which accounted for 66% of sales, climbed
8.2% and rose 3.8% on a same-store basis. Amid overall lower U.S.
prescription-drug spending, Walgreen last summer started
aggressively marketing its Prescription Savings Club, which
provides discounts on generics and branded medications and rebates
on store-brand products.
The company said it acquired 50 drugstores during the quarter,
including 29 Drug Fair locations and eight Rite Aid Corp. (RAD)
stores.
-By Kelly Nolan, Dow Jones Newswires; 212-416-2167;
kelly.nolan@dowjones.com
(Kerry E. Grace contributed to this report.)