By Chelsey Dulaney
Walgreen Co. said strong pharmacy sales and cost cuts helped
drive a 16% rise in profit in its latest quarter.
Shares in Walgreen, the largest U.S. drugstore chain by number
of stores, rose 3% to $76.51 Tuesday.
The upbeat results come less than a week before a shareholder
vote on Walgreen's deal to buy the rest of European drugstore chain
Alliance Boots GmbH--a move that would expand Walgreen from a U.S.
operation with 8,200 locations to a global one, doing business in
more than 10 countries with more than 11,000 total locations.
Walgreen, worried about the possible public reaction, decided
not to move its headquarters offshore to lower its tax bill as part
of the deal.
Shareholders are set to vote on the deal on Monday, and
prominent shareholder advisory firms Glass, Lewis & Co. and
Institutional Shareholder Services Inc. have given the deal their
blessing. Walgreen Chief Executive Greg Wasson will step down after
the merger is completed.
The combination is aimed at giving the companies greater scale
and purchasing power at a time that lower drug-reimbursement rates
and higher costs for generic drugs are hurting profits.
Walgreen shocked investors in August when it cut its long-term
profit forecast because it had failed to account for a rapid rise
in the price of generics as it negotiated contracts to offer
prescription drugs under Medicare's Part D program.
The bungled generics forecast led to the departure of two top
executives, including Chief Financial Officer Wade Miquelon.
Walgreen is also relying on higher margin from selling items
such as beauty products in the front end of the stores as well as
cost cuts to offset the pressure its pharmacy division is
facing.
For the fiscal first quarter ended Nov. 30, the company's
selling, general and administrative expenses edged up 1.8% from a
year earlier. Overall, Walgreen posted a profit of $809 million, or
85 cents a share, up from a profit of $695 million, or 72 cents a
share, a year earlier. Revenue rose 6.7% to $19.6 billion.
Excluding one-time items, per-share earnings were 81 cents,
compared with 72 cents a year earlier. Analysts polled by Thomson
Reuters had projected 75 cents a share in earnings and $19.5
billion in revenue. Customer traffic fell 2.7%, and basket size
increased 4.2%.
Sales, excluding newly opened or closed locations, rose 5.7%,
including a 1.5% increase for front-of-the-store sales. Pharmacy
sales, excluding newly opened or closed locations, increased 8.1%
as the stores filled 4.1% more prescriptions.
Write to Chelsey Dulaney at Chelsey.Dulaney@wsj.com
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