Updated from 8:33 a.m. EDT

Walgreen

(WAG)

reported record third-quarter results Monday, thanks to strong prescription sales and what the company described as "good expense control."

The Deerfield, Ill.-based company posted net income of $344.6 million, or 33 cents a share, on revenue of $9.58 billion, vs. $296.1 million, or 29 cents a share, on revenue of 8.33 billion.

The consensus estimate was for a profit of 32 cents a share, according to Thomson First Call.

Shares of Walgreen were recently up 74 cents, or 2.1%, to $35.64 in Monday trading.

Same-store sales rose 10.4% in the quarter ended May 31, led by prescriptions, which jumped 13.4% on a same-store sales basis. Total prescription sales increased 17.2% and accounted for 64% of sales in the period.

Front-end same-store sales increased 5.6%, led by an increase in customers, the company said in a recorded call.

Gross profit improved to 26.9 as a percent of sales vs. 26.8 in the year-ago period. Walgreen said sales of front-end product sales helped boost gross profit margin.

"We saw our sales mix move toward higher margin categories, especially digital photo processing," the company said. "We also saw good news with pharmacy margins as a percent of sales -- they were nearly flat for the quarter thanks to a steady stream of new generics coming to the market."

The company added, however, that fast pharmacy growth hurts margins because prescription sales provide lower gross profit than front-end items.

On the expense side, Walgreen said selling, occupancy and administrative costs fell 2 basis points to 21.23 as a percent of sales. "Our store expansion program allows us to spread fixed costs over a larger base, and we did a good job of controlling other expenses," the company said.

The company ended the quarter with $1.577 billion in cash and cash equivalents, up $854.4 million from a year ago.

At quarter's end, Walgreen operated 4,414 drugstores in 44 states and Puerto Rico, about 9% higher than a year ago. The company plans to open more than 425 new stores in its 2004 fiscal year.