NEW YORK (TheStreet) -- You would think by now Walgreen
(WAG) would need a booster shot.
The pharmacy company released anemic quarterly results last week showing margins dropped by more than 120 basis points.
Walgreen reported a year-over-year decline in net income to $754 million, or 78 cents a share, from $756 million, or 79 cents a share. Profit excluding items was 91 cents, 2 cents less than the consensus estimate of analysts polled by Thomson Reuters.
So why is the stock, currently trading around $66, up nearly 15% for the year to date? Because the company is still profitable.
Consider: The company is closing down 74 Walgreen's locations by this August, which can give a more than $40 million boost to its bottom line. Synergies coming from prior acquisitions and a healthy business environment could help the company sustain its above-average margin in the coming years.In its previous quarterly results, Walgreen reported a 4.3% year-over-year growth in comparable-store sales and a 5.1% increase in net sales to a record level of $19.6 billion even though the company's earnings dropped by 1 cent to 78 cents per share from the same quarter last year. The company suffered from fewer generic drug introductions, a moderate flu season and severe weather conditions that had an adverse impact on customer traffic. Nonetheless, Walgreen still managed to report higher sales and was able to improve its retail prescription market share by 20 basis points to 19%. Walgreen has forecast the store closures could also give an annual boost of between $40 million and $50 million to the company's earnings before interest and taxes starting from 2015. Even with the closures, the company plans increase its total store count by between 55 and 75 locations by the end of the current fiscal year. Unlike its other rivals, such as CVS Caremark (CVS), Walgreen has been all about profitability. The decision to close the stores was taken in light of Walgreen's efforts to optimize its cost structure and its assets.
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