Walgreen

(WAG)

has seen healthier days.

The giant drugstore chain posted another record-breaking quarter, as it cut prices on its merchandise and aggressively managed its expenses, but the company got an extra boost : Fourth-quarter profit jumped nearly 12% to $443 million, or 45 cents a share, but included a positive vacation accrual adjustment of $79 million.

Analysts were expecting Walgreen to generate a 45-cent profit without that extra help.

Walgreen fell a bit short of top-line projections as well. Thanks to growth in both its pharmacy and its front-end businesses, the company saw revenue climb 8.8% to approach $14.6 billion. Still, analysts predicted that the company would pass that mark with sales of $14.67 billion instead.

Walgreen's stock fell $1.73 to a new 52-week low of $31 on the news.

Given the tough industry environment, Walgreen felt that it performed quite well.The company saw same-store sales rise by 2.6% during the quarter, with same-store sales of front-end merchandise - which sometimes carries hefty margins -- climbing an even stronger 3.7%. Meanwhile, same-store sales of prescriptions rose 2.8% despite a slide in prescription volumes for the industry overall.

Walgreen's total prescriptions, including those sold in its new stores, jumped by 7.9% in the latest period. In contrast, total prescriptions sold by others across the industry fell by 1.9% during that same timeframe.

"Tough times are forcing people to make tough choices -- delaying doctor visits and prescription use," Walgreen CEO Jeffrey Rein said. "Even with these challenges, our pharmacies are consistently performing ahead of the industry."

With cash-strapped customers hunting for bargains, however, Walgreen struggled to meet its targets in the front end of its stores. The company cut prices on some of its merchandise in an effort to increase traffic. But it wound up hurting its margins too much in the end.

Now, Walgreen is backing away from that strategy.

"In reaction to the economy, we invested more than originally planned in promotional and pricing programs in the fourth quarter," Walgreen President Greg Wasson said. "While their high value attracted customers, they did not produce the incremental sales we'd hoped for. (Therefore), going forward, we plan to moderate our promotional activity while focusing on the value of our convenience and services."

Walgreen made some progress in the meantime. During the latest quarter, the company said that it gained market share in 58 of the top 60 product categories that it sells.

Walgreen clearly outperformed lagging rival

Rite Aid

(RAD) - Get Report

. Late last week, Rite Aid reported yet another dismal quarter following its ill-timed acquisition of the Brooks and Eckerd chains.

Rite Aid purchased those two chains just as the drugstore industry took a definite turn for the worse. The acquisition has taken a heavy toll on the company's performance, its balance sheet and its stock price.

Shares of Rite Aid, which fetched almost $5 a year ago, fell below $1 into penny stock territory last week. They slipped another 6 cents to 85 cents a share following Walgreen's disappointing report.

Rite Aid hopes that recent changes - including the national rollout of a new savings card and the installation of a new president - will finally fuel its turnaround. But skeptics clearly have their doubts.

"These measures may not stop the pain for Rite Aid investors," Gimme Credit analyst Kim Noland emphasized on Monday. "New management likely will take immediate steps to further cut expenses ... Nevertheless, consumers are very challenged and pharmacy trends are weak."

Even

Cardinal Health

(CAH) - Get Report

-- one of the nation's largest drug wholesalers -- has embarked on major changes. In a radical move on Monday, Cardinal laid out plans to split itself into two companies and replace the CEO that it hired just two-and-a-half years ago.

Specifically, Cardinal plans to spin off the "clinical and medical products" division that specializes in medical technology. After that tax-free spinoff, Cardinal will then operate its big "healthcare supply chain services" division -- which sells drugs to hospitals and pharmacies -- as a standalone company.

"We undertook a very disciplined exploratory process that involved our board, management and outside advisors," Cardinal CEO Kerry Clark stated on Monday. "The result was a unanimous decision to move forward with the spinoff.

"This strategic decision will benefit Cardinal Health and the new med-tech company by allowing each business to focus on its unique growth strategies, capital needs and customer requirements."

Clark plans to immediately retire after Cardinal completes the spin-off around the middle of next year. Cardinal will then rely on its two division vice chairmen to serve as CEOs of the standalone companies.

Cardinal's founder, Robert Walter, plans to retire from the board in the meantime. He will continue to serve as an adviser to the company.

Both Clark and Walter insisted that they will leave behind two very strong stand-alone companies. As added reassurance, however, management reiterated its recent earnings guidance. Shareholders seemed relieved, pushing the company's stock up 70 cents to $50.40 on a bloody day for the market overall.