Walgreen Co. reported robust revenue and earnings increases for its fiscal 2011 fourth quarter and full year, with adjusted net income exceeding Wall Street's forecast.

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Walgreens turns in gains for 4Q, full year

September 27th, 2011

DEERFIELD, Ill. – Walgreen Co. reported robust revenue and earnings increases for its fiscal 2011 fourth quarter and full year, with adjusted net income exceeding Wall Street's forecast.

Walgreens said Tuesday that for the fourth quarter ended Aug. 31, total sales rose 6.5% $17.97 billion from $16.87 billion a year earlier.

Same-store sales climbed 4.4% in the quarter, reflecting gains of 4.6% in the front end and 4.4% in the pharmacy. Customer traffic in comparable stores increased 1.6%, while basket size was up 3%.

Walgreens reported that overall pharmacy sales advanced 5.7%, with the drug store chain filling 202 million prescriptions in the quarter, up 4% versus a year ago. Prescriptions filled in comparable stores increased 3.4% in the quarter. The company noted that it exceeded by 2.3 percentage points the prescription growth rate of the rest of the industry during the same period, as reported by IMS Health.

Meanwhile, adjusted net earnings for the fourth quarter — excluding an after-tax gain on the $525 million sale of Walgreens Health Initiatives Inc., the company's pharmacy benefit management business — climbed to $519 million, or 57 cents per diluted share, from $470 million, or 49 cents per diluted share, in the prior-year period.

For the 2011 quarter, analysts on average projected adjusted earnings per share of 55 cents, with the forecast ranging from a low of 52 cents to a high of 58 cents, according to Thomson Financial.

Walgreens noted that fourth-quarter earnings also include the negative impact of 2 cents per diluted share from its acquisition of drugstore.com and 1 cent per diluted share in restructuring-related costs from its Rewiring for Growth initiative.

Including the gain on the WHI, net earnings for the fourth quarter were $792 million, or 87 cents per diluted share.

"Walgreens delivered strong performance and growth for the quarter and the year by continuing our relentless focus on providing convenience and value to consumers, and cost-effective pharmacy, health and wellness solutions to the millions of patients we serve every day," Walgreens president and chief executive officer  Greg Wasson said in a statement.

"Through constant innovation and effective execution of our key initiatives," Wasson stated, "we continued to make substantial progress this year in the transformation of Walgreens to become the first choice for health and daily living — meeting the needs of both consumers and patients in today’s challenging economy and changing health care system."

For fiscal 2011, total sales increased 7.1% to a record $72.2 billion. Adjusted earnings, excluding the WHI sale, were $2.4 billion, or $2.64 per diluted share, above the average analyst forecast of $2.62, with projections running from a low of $2.59 to a high of $2.67. Walgreens said full-year net earnings reflect the impacts of 3 cents per diluted share in costs associated with Rewiring for Growth, 2 cents per diluted share from the acquisition of drugstore.com and 1 cent per diluted share in Duane Reade costs. Including the the sale of WHI, 2011 net earnings were $2.7 billion, or $2.94 per diluted share.

Walgreens said that in fiscal 2011 the company boosted its retail prescription market share to 20%, filling a record 819 million prescriptions, a gain of 5.3%. The drug chain also administered 6.4 million flu shots last year and noted that, aside from the federal government, it was the nation's No. 1 provider of flu shots.

The company, too, said it met its goal set in 2009 to convert or open 5,500 Walgreens stores to its new Customer-Centric Retailing format. The retailer also exceeded its Rewiring for Growth cost reduction goal of $1 billion in annual savings, concluding its three-year restructuring initiative launched in 2008.

"We are confident that fiscal 2012 will be another great year of progress in our ongoing transformation and commitment to serving consumers and patients where they live and work," Wasson stated.

Still, Walgreens saw its stock price fall $2.26, or 6.3%, to $33.77 on Tuesday after saying in its earnings report that the company has seen "no substantive progress in the contract renewal negotiations with Express Scripts." Walgreens reported that as part of its strategy to move forward without Express Scripts after Dec. 31, it's "working with a number of partners to explore all options so that their employees and members can continue to have access to Walgreens convenient, cost-effective pharmacy, health and wellness services."

Walgreens announced in late June that it planned to exit the pharmacy benefit manager's Rx network starting Jan. 1 because of failed contract talks. At the time, the drug chain said Express Scripts processes about 90 million prescriptions that are expected to be filled by Walgreens in fiscal 2011, representing roughly $5.3 billion in annual sales.

In the fourth quarter, Walgreens opened or acquired 59 new drug stores, compared with 65 a year earlier. The retailer said that in fiscal 2011 it saw a net gain of 199 new drug stores, including 32 acquisitions, on target with its plan to slow organic store growth to between 2.5% and 3% during the year. As of Aug. 31, Walgreens operated 7,761 drug stores.