DEERFIELD, Ill. — Fueled by a robust sales gain, Walgreen Co. bested Wall Street analysts’ profit projections for its fiscal fourth quarter but saw earnings slip year over year.
The drug store chain said Tuesday that sales for the quarter ended August 31 climbed 7.6% to $15.7 billion from $14.6 billion a year earlier. On a comparable-store basis, sales edged up 2.4 percent in the quarter, reflecting a 1.4% decline in the front end and a 4.5% increase in the pharmacy.
Overall prescription sales rose 9%, and Walgreens said it filled 9.1% more prescriptions in the quarter versus the year-ago period. That includes a benefit of 1.4 percentage points because of more patients filling 90-day prescriptions, according to the company, which noted that it exceeded by 5 percentage points the industrywide prescription growth rate, as reported by IMS Health.
Net earnings for the fiscal 2009 fourth quarter came in at $436 million, or 44 cents per diluted share, down 1.5% from $443 million, or 45 cents per diluted share, a year ago. However, Walgreens beat the average analyst forecast of 39 cents per share, with earnings coming in at the high end of their estimates, which ranged from 36 cents to 45 cents per share, according to Thomson Financial.
Walgreens noted that fourth-quarter earnings included the impact of 3 cents per diluted share in costs and 7 cents per diluted share in savings related to its Rewiring for Growth initiative. In addition, the prior-year period included the benefit of a vacation accrual adjustment of $79 million, or 5 cents per diluted share, the company said.
Gross profit margin, meanwhile, inched up 0.1 percentage points to 27.7% of sales in the fourth quarter. That includes a LIFO provision of $48 million, compared with $24 million a year earlier. Helping overall margins, Walgreens said, was a gain in retail pharmacy margins due to generic drug sales. Nonretail businesses, front-end product mix, a higher LIFO provision and Customer-Centric Retailing markdowns, though, negatively impacted margins, the company added.
Cash flow from operations jumped 55% to $852 million for the fourth quarter. Drug store performance, including improved working capital, was the key driver, according to Walgreens.
"We posted solid fourth-quarter results while continuing to advance one of the most important strategic and operational transformations in our company’s history," president and chief executive officer Greg Wasson said in a statement. “And we’ve done this while navigating through the most severe economic downturn in decades. Despite the tough environment, we’ve maintained our financial flexibility to invest in the right opportunities while enhancing our relevancy to customers."
Selling, general and administrative expense dollars for the fourth quarter rose 9.6%, which includes 2.6 percentage points due to last year’s vacation accrual adjustment and 0.9 percentage points for Rewiring for Growth costs, Walgreens reported. Total expense growth was partially offset by savings from Rewiring for Growth, primarily in store payroll.
"We’ve relentlessly reduced costs and focused on productivity gains while continuing to execute well on our strategies," Wasson stated. "Our Rewiring for Growth initiative remains on track to deliver $1 billion in pretax cost savings by 2011."
For the 2009 fiscal year, Walgreens’ total sales gained 7.3% to $63.3 billion from $59 billion in the previous year. Fiscal 2009 profit came in at $2.01 billion, or $2.02 per diluted share, down 7% from $2.16 billion, or $2.17 per diluted share, the year before. The average analyst estimate was $1.98 per share, Thomson Financial reported.
Walgreens noted that fiscal 2009 earnings reflect the impact of 16 cents per diluted share in costs and 16 cents per diluted share in savings associated with the Rewiring for Growth effort.
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