Walgreen Profit Dips; Stock Slips (Update)

(Update: Additional sales numbers, early morning trading figures, analysts outlook and company initiatives included.)

Walgreen(WAG Quote) was sickened in the third quarter by non-pharmacy items, as consumers cut back on cosmetics and hair-care products.

The company's profit slipped 9% to $522 million, or 53 cents a share, missing analysts' expectations of 56 cents. That compares with a profit of $572 million, or 58 cents in the year-ago period.

Sales jumped 8% to $16.21 billion, while total same-store sales grew 2.8%.

Prescription sales, which accounted for 65.6% of sales in the quarter, climbed 8.2%, while comparable prescription sales increased 3.8%. But front-end comps only increased .9%.

Shares of the company tumbled 4% to $30.16 in early morning trading.

Walgreen is trying to increase profits through its "Rewiring for Growth" initiative, which includes cutting jobs, opening fewer stores than originally planned and lowering expenses.

The company is also testing a program called "Consumer Centric Retailing" that is designed to improve its front-end results by reducing the total number of products the company carries and better targeting consumer preferences. The program is being piloted at 35 stores, and Walgreen said those stores are doing better than expected.

But these strategies will put pressure on its gross margins and selling, general and administrative expenses, leaving a cautious outlook for Walgreen, Citi anlyst Deborah Weinswig wrote in a note on Monday.

The company's goal is to cut its annual expenses by $1 billion starting in 2011, which is adding to its costs this year.

Rival Rite Aid (RAD Quote) is set to report earnings results on Wednesday.