Walgreen’s results lifted by strong prescription sales

June 24, 2014, 12:05 PM UTC
A Walgreen Co. store in Oak Park, Ill.
A Walgreens in Oak Park, Ill.
Photograph by Daniel Acker — Bloomberg/Getty Images

Walgreen’s (WAG) fiscal third-quarter profit jumped 16% as the drugstore chain reported higher prescription sales at the pharmacy counter.

While most Americans know Walgreen as a drugstore chain found in their local neighborhoods, the company has evolved beyond a traditional focus on domestic retailing. Walgreen now owns nearly half of European pharmacy giant Alliance Boots and those two firms last year signed a 10-year distribution contract with AmerisourceBergen (ABC), a deal intended to allow Walgreen to buy generic drugs at cheaper prices.

Chief Executive Greg Wasson said strong sales in the quarter were bolstered by an increase in the number of prescriptions Walgreen filled as well as expanded market share at the pharmacy counter. But Wasson said the company also faced increased pressure for pharmacy gross margins, which was hurt by lower third-party reimbursement and generic drug price inflation. A similar concern was flagged by peer Rite Aid (RAD), which last week reported fiscal first-quarter profit slid 54% in part due to lower pharmacy reimbursement rates.

As a result of those cost pressures, Wasson said Walgreen would take “additional steps to lower expenses companywide.” He didn’t indicate how the drugstore chain was planning to cut costs in his prepared remarks.

For the quarter ended May 31, Walgreen reported a profit of $722 million, or 75 cents a share, up from $624 million, or 65 cents a share, a year earlier. Excluding acquisition-related expenses and other items, adjusted profit rose to 91 cents from 85 cents a share.

Net sales climbed 5.9% to $19.4 billion, with total sales at stores open at least a year, known as same-store sales, rising 4.8%.

Analysts surveyed by Bloomberg News had projected an adjusted profit of 94 cents a share on $19.48 billion in sales.

Prescription sales increased 8.4%. At the front end, where Walgreen sells food, beauty products and other discretionary items, same-store sales climbed 2.2% as customers visiting the stores spent more, though traffic decreased slightly.

Gross margin narrowed to 28.1% from 28.5%.

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