Updated from 10:51 a.m. EDT
reported Monday that its earnings rose 21.5% in its third fiscal quarter, enabling the big drugstore chain to exceed Wall Street's estimates by a penny a share.
For the quarter ended May 31, Walgreen posted net income of $194 million, or 19 cents a diluted share, compared with net income of $159 million, or 16 cents a diluted share, in the year-earlier quarter. Analysts polled by
First Call/Thomson Financial
were expecting 18 cents a share in the latest quarter.
Sales rose 18%, to $5.4 billion, from $4.6 billion in the third quarter of 1999. Total sales in stores that were open more than a year were up 10.6% in the third quarter.
Shares of Walgreen finished up 9/16, or 2%, at 29 1/16.
Prescription sales, which represented 57% of Walgreen's total sales in the quarter, were up 24.2% over all and rose 17.3% in stores that were open more than a year.
Eric Bosshard, an analyst for
who has a market perform rating on Walgreen, said "really strong" sales growth, especially in Walgreen's pharmacies, contributed to the higher earnings. "There's a lot of compelling macro factors in the pharmacy," Bosshard said, referring to "good" pricing, "strong" products, an aging population and successful new drug introductions from manufacturers.
Walgreen reinforced that view. "The biggest thing is prescription sales being driven by growth in numbers as the baby boomers age," said Michael Polzin, a spokesman for the Deerfield, Ill.-based drugstore company. "We're also seeing patients switching to new, higher-priced medications and an increase in the use of lifestyle drugs," such as Viagra, he added.
Polzin noted that Walgreen's non-pharmacy sales were up 2.9% in the quarter at stores open more than a year, providing an increase that he called "especially strong."
Walgreen opened 106 stores in the third quarter. At the end of May, more than 1,000 of the company's stores were less than three years old. Walgreen opened its 3,000th store on May 11 in Chicago and also granted stock options to all 110,000 Walgreen employees the same day.
L. Daniel Jorndt, Walgreen's chief executive, said in a statement that the new stores would initially pull down profitability, but that they would put the company in "excellent position for future performance as these new stores establish themselves in the years ahead."
Walgreen said it expected the new stores to make its online pharmacy more attractive, since more than 90% of its Internet customers pick up their prescriptions at local Walgreen stores instead of waiting for mail delivery. Walgreen plans to expand its online pharmacy with other drugstore items such as over-the-counter medications, cosmetics and general merchandise by the end of the year.
Bosshard of Midwest Research, noting the earnings were "slightly better" than he expected, said that the company had done a "very good job" in controlling its expenses and that this contributed to the higher earnings. Selling, general and administrative expenses fell 43 basis points, or hundredths of a percentage point, to 21.1% of Walgreen's sales in the quarter.
Bosshard projects Walgreen will earn 18 cents a share in its fourth quarter and 73 cents a share for the fiscal year. He said sales growth is the key short- and long-term factor for Walgreen, and the company's new store program is driving "strong" sales growth. "Other pharmacies are growing fast, but none this fast," he said. "The bet is that the payback from these new stores is key for them continuing to grow earnings."
Midwest Research has done no underwriting for Walgreen.
Over all, analysts polled by First Call/Thomson Financial expect Walgreen earnings to be 19 cents a share for the fourth quarter and 73 cents a share for the year.