Walgreen drugstore chain sees profits rise

CHICAGO - Walgreen, the largest US drugstore chain, on Monday reported a 13.7 per cent increase in quarterly profit due to rising prescription demand.

But earnings fell a penny short of the average analyst estimate, excluding gains from legal settlements, and the stock fell 3 per cent on the New York Stock Exchange.

Eric Bosshard, analyst at FTN Midwest Research, said expectations for Walgreen's have risen as the company continues to post strong sales and earnings. Excluding one-time gains in both quarters, profit rose 15.1 per cent.

"They fell short of high expectations but it's still a fine quarter," Bosshard, who rates the stock "neutral," said.

Profit rose to US$490.9 ($691.70) million, or US48c a share, in the fiscal second quarter ended February 28 from US$431.6 million, or US42c a share, a year earlier.

Excluding gains from legal settlements, earnings were US47c a share, a penny shy of the average analyst estimate, according to Reuters Estimates.

Sales rose 12.3 per cent to US$10.99 billion in the quarter.

Sales at stores open at least a year rose 7.7 per cent. The sales compare with a year-earlier period that had an extra day due to Leap Year.

Increased sales of lower-priced generic drugs cut 2.5 percentage points from overall sales growth, Walgreen said. But generic drugs are also higher margin items, helping Walgreen's bottom line.

Walgreen has also seen its photo business helped by the conversion to digital photo labs in its stores.

That popular form of photo processing has helped stem declines in overall photo processing and is also more profitable than sending film out to a third party for processing.

Prescription same-store sales rose 10.1 per cent and sales of non-prescription items rose 4.1 per cent on a same-store basis.

Walgreen, with 4738 stores, said it is on track to open 450 new stores for the fiscal year, with a net increase of 365 stores, including store closings.

Walgreen shares fell US$1.48 to US$44.75 Monday morning on the New York Stock Exchange.

- REUTERS