Walgreen Earnings Drop 8.7% as Margins Decline

Walgreen Co.'s earnings for its fiscal third quarter dropped 8.7% as falling margins offset growth in revenue and prescription sales.

A pullback in consumer spending exacerbated the pressure drugstore chains already felt from weaker prescription-drug sales and increased competition. Promotion of discount-drug programs as helped reduce consumer prices and led to greater use of generic drugs. Walgreen, the largest drugstore chain in the U.S. by sales, has been reining in its previous break-neck growth, slowing store openings and cutting jobs.

Walgreen on Monday posted income of $522 million, or 53 cents a share, for the period ended May 31, down from $572 million, or 58 cents a share, a year earlier.

Net sales increased 8% to $16.21 billion, which the company said was a record. Same-store sales rose 2.8%.

Gross margin slid to 27.5% from 28.3% on nonretail operations and added inventory costs. Among other areas, Walgreen also manages workplace health-and-wellness centers.

Prescription sales, which accounted for 66% of sales, climbed 8.2% and rose 3.8% on a same-store basis. Amid overall lower U.S. prescription-drug spending, Walgreen last summer started aggressively marketing its Prescription Savings Club, which provides discounts on generics and branded medications and rebates on store-brand products.

The company said it acquired 50 drugstores during the quarter, including 29 locations from Drug Fair Group Inc., which filed for bankruptcy protection, and eight stores from Rite Aid Corp., which is struggling under a heavy debt load.


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