Despite mild flu season, Walgreen earnings up 7 percent in second quarter
CHICAGO – Despite a mild flu season that kept many people out of doctors’ offices and pharmacies, Walgreen Co. on Monday said its earnings rose 7 percent during the second quarter thanks to strong holiday merchandise sales.The news sent the Deerfield, Ill.-based company’s shares up 50 cents, or 1.1 percent, to $44.87 in late afternoon trading on the New York Stock Exchange, where they have traded in a 52-week range of $40.98 to $49.01.Walgreen’s earnings increased to $523.5 million, or 51 cents per share, for the three months that ended Feb. 28 from $490.9 million, or 48 cents per share, a year earlier. The latest quarter included stock option expenses, while the year-ago period was boosted by a gain from litigation settlements.During the same period, the company’s sales grew 11 percent to $12.16 billion from $10.99 billion. Walgreen is the nation’s biggest drugstore chain by revenues, but is second to CVS Corp. by number of stores.Wall Street was looking for second-quarter earnings of 52 cents per share and sales of $12.24, according to Thomson Financial.Morningstar analyst Mitchell Corwin said sales were slower than expected, but the flu strain was weaker this year than last year and the company’s margins held up.”I’m not as concerned because the company is gaining market share relative to its peers and generating strong earnings and strong cash flow,” Corwin said.Derek Leckow, an analyst with Chicago-based Barrington Research Associates, said investors don’t appear worried that Walgreen missed Wall Street’s estimates. They are focusing on the company’s continued expansion plans and believe the new Medicare prescription benefit plan will increase sales volume over the next several months, he said.”Despite the fact they missed the estimate, most investors are looking past near-term results and looking into next year,” Leckow said.Walgreen, which has more than 5,100 drugstores across the country, is on track to open about 475 new stores this year and plans to operate more than 7,000 stores by 2010, said Walgreen director of finance Rick Hans.In comparison, rival CVS Corp., the nation’s largest drugstore chain by store count, announced plans earlier this year to purchase about 700 stand-alone Sav-on and Osco Drugstores and a distribution center from Albertson’s Inc. If the deal closes as expected this summer, CVS has said it will operate 6,100 stores across the country.Prescription sales, which accounted for 61.5 percent of sales in the quarter, climbed 11 percent. Prescription sales in comparable stores, or stores open more than a year, rose 7.4 percent, the company said.The mild flu season, concerns about side effects from medication including the troubled arthritis drug Vioxx, and Medicaid issues in some parts of the country helped hold back prescription sales in the second quarter, Hans said.But the company also had strong growth in its digital photo division thanks to a new service that allows customers to order digital photos over the Internet and pick them up at Walgreens stores in one hour, he said.”We were pleased with our market share gains in the front-end store, even with a tough sales comparison to the year-ago period,” Hans said in a Webcast to investors.Earnings for the first six months of fiscal 2006 rose 6.1 percent to $869.1 million, or 85 cents a share, compared with $819.5 million, or 80 cents a share, for the same 2005 period. Six-month sales rose to $23.1 billion from $20.9 billion for the year-earlier period.—On the Net:www.walgreens.com
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