* Fourth-quarter sales up 5.1 percent to $17.94 billion
* Alliance Boots helps results
* Shares up more than 4 percent
By Jessica Wohl
Oct 1 Walgreen Co reported a much higher
quarterly profit on Tuesday as it filled more prescriptions and
enticed shoppers with offers and updated stores, and it said
sales trends kept improving in September.
Shares of Walgreen, the largest U.S. drugstore operator,
were up 4.4 percent at $56.17 on the New York Stock Exchange
after rising as high as $56.69.
Walgreen's sales at stores open at least a year rose 4.6
percent in the fourth quarter ended on Aug. 31. There was
"further improvement" in same-store sales and traffic in
September, Chief Executive Officer Greg Wasson said on a
Walgreen has been overhauling itself over the past couple of
years. It lost millions of customers in 2012 when it was unable
to fill prescriptions for Express Scripts Holding Co
patients during a now-resolved contract dispute with the
pharmacy benefits manager.
The company is drawing those customers and others with
special discounts and its year-old Balance Rewards loyalty
program, as well as redesigned and new stores. Walgreen also
acquired a 45 percent stake in Alliance Boots Holdings Ltd
, which runs Europe's largest pharmacy chain, in 2012
and has the option to buy the rest in about two years.
Walgreen said the work it was doing with Alliance Boots,
such as combining the chains' drug purchases and selling the
European company's products in its stores, had led to $154
million in revenue and savings in the first year of their
partnership. That is slightly higher than the $125 million to
$150 million in so-called synergies that Walgreen had forecast.
As expected, Alliance Boots contributed 8 cents per diluted
share to fourth-quarter earnings before special items.
"The Alliance Boots deal is looking just increasingly better
than what people were looking for," said Tony Scherrer, director
of research and co-portfolio manager at Smead Capital
Management, which holds roughly 617,574 shares of Walgreen. "We
wouldn't be surprised at all to see them ... own 100 percent of
it sooner rather than later."
Despite the short-term cost, plans such as promoting loyalty
cards and offers in circulars to woo shoppers are the right move
for Walgreen for the long term, Scherrer said.
Walgreen is the fourth-largest holding for Smead, which has
about $650 million in assets under management.
SLIGHT PROFIT BEAT
Walgreen's fourth-quarter net income increased to $657
million, or 69 cents per share, from $353 million, or 39 cents
per share, a year earlier. Excluding acquisition-related costs
and other special items, earnings were 73 cents per share,
beating the analysts' average estimate by 1 cent, according to
Thomson Reuters I/B/E/S.
Higher sales of generic drugs weighed on revenue but boosted
margins. These medicines sell for less than branded ones but are
more profitable for drugstore chains.
Sales rose 5.1 percent to $17.94 billion, just below the
$17.95 billion preliminary figure Walgreen gave on Sept. 5.
Gross margins rose to 28.9 percent from 28.3 percent a year
earlier as the company filled 8.2 percent more prescriptions.
Walgreen said it had filled a record 821 million
prescriptions in fiscal 2013, bringing its share of the retail
prescription market up 0.4 percentage point to 19.1 percent.
Earlier this year, Walgreen and Alliance Boots signed a
10-year deal with distributor AmerisourceBergen Corp,
which started daily deliveries of branded drugs to Walgreen
stores in September. Generic drugs should soon follow.
Walgreen and Rite Aid Corp, the third-largest U.S.
drugstore operator, plan to report September sales on Thursday.
The No. 2 company in the industry, CVS Caremark Corp, no
longer releases monthly sales reports.