(Adds company, analyst comment, byline; updates share
By Brad Dorfman
CHICAGO, June 23 Walgreen Co WAG.N on Monday
posted a 2 percent increase in quarterly profit as a weak U.S.
economy and slowing growth in demand for prescription drugs
But the company also said it was on pace to open more
stores than planned this fiscal year and that new locations
were continuing to meet or exceed its target for return on
Walgreen, one of the largest U.S. drugstore chain
operators, said earnings rose to $572 million, or 58 cents a
share, in the third quarter that ended May 31 from $561
million, or 56 cents a share, a year earlier.
Analysts on average had forecast profit of 59 cents a
share, according to Reuters Estimates.
Earnings suffered because of a $16.1 million
inventory-related charge, while in the year-earlier period, the
company had an inventory gain of $3.5 million and a $13.5
million tax credit.
Sales rose 9.6 percent to $15.01 billion.
Sales at stores open at least a year rose 3.4 percent,
including increases of 2.7 percent for prescription drugs and
4.6 percent for nonprescription items.
Walgreen has seen the pace of prescription drug sales slow
as the allergy medicine Zyrtec became available over the
The company also said it was on pace to open more than the
550 new stores it had planned for this fiscal year, expanding
its store base by more than 9 percent.
During a conference call with investors, Chief Executive
Officer Jeff Rein said that after new stores got up and
running, they were making more than a 15 percent return on
This may have assuaged come concerns about the company's
expansion as Walgreen has opened stores at a brisk pace to try
to boost its business.
"They continue saying that they are meeting their internal
rate of return target," said Sovereign Asset Management retail
analyst Sarah Henry.
Henry also said Walgreen, like other drugstore companies,
should get a profit boost starting in the next fiscal year as a
number of blockbuster drugs become available in generic form,
including Pfizer Inc's (PFE.N) Lipitor cholesterol fighter and
Caduet, which combines Lipitor with a blood-pressure medicine.
"If you look at the schedule for large blockbuster drugs
there's going to be another big bubble of them," Henry said.
While generic drugs carry a lower price and cut into
drugstore sales, they are also more profitable.
Selling, general and administrative expenses as a
percentage of sales were about flat, as Walgreen cut
advertising spending and slowed the pace of salary and cost
increases in stores.
Walgreen shares were down 22 cents at $34.85 in afternoon
New York Stock Exchange trade. The stock is down about 8
percent this year, compared with a 2.3 percent rise for rival
CVS Caremark Corp (CVS.N).
(Reporting by Brad Dorfman; Editing by Maureen Bavdek)