By Chelsey Dulaney
Walgreen Co. said strong pharmacy sales helped drive
better-than-expected results in its November quarter.
The upbeat results come less than a week before a shareholder
vote on Walgreen's deal to buy the rest of drugstore chain Alliance
Boots GmbH--a move that would expand Walgreen from a U.S. operation
with 8,200 locations to a global one, doing business in more than
10 countries with more than 11,000 total locations.
Walgreen, worried about the possible public reaction, decided
not to move its headquarters offshore to lower its tax bill as part
of the deal.
Shareholders are set to vote on the deal next Monday, and the
two prominent shareholder advisory firms, Glass, Lewis & Co.
and Institutional Shareholder Services Inc., have given the deal
their blessing.
The combination is aimed at giving the companies greater scale
and purchasing power at a time when lower drug reimbursement rates
and higher costs for generic drugs are hurting profits.
Walgreen shocked investors in August when it slashed its
long-term profit forecast because it had failed to account for a
rapid rise in the price of generics as it negotiated contracts to
provide prescription drugs under Medicare's Part D program.
The bungled generics forecast led to the departure of two top
executives when it came to light, including Chief Financial Officer
Wade Miquelon.
Walgreen is also relying on higher margin from selling items
such as beauty products in the front end of the stores as well as
massive cost cuts to offset the pressure in its pharmacy division
is facing. The company is accelerating some of the cost cuts,
including a hiring freeze for the rest of the year.
For the fiscal first-quarter ended Nov. 30, the company's
selling, general and administrative expenses inched up 1.8%.
Overall, Walgreen posted a profit of $809 million, or 85 cents a
share, compared with a profit of $695 million, or 72 cents a share,
in the prior-year period.
Excluding one-time items, per-share earnings were 81 cents,
compared with 72 cents a year ago.
Revenue improved 6.7% to $19.6 billion. Analysts polled by
Thomson Reuters had projected 75 cents a share in earnings and
$19.5 billion in revenue.
Sales, excluding newly opened or closed locations, rose 5.7%,
including a 1.5% increase for front of the store sales. Pharmacy
sales, excluding newly opened or closed locations, increased 8.1%
as the stores filled 4.1% more prescriptions.
Customer traffic fell 2.7%, and basket size grew 4.2%.
Write to Chelsey Dulaney at Chelsey.Dulaney@wsj.com
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