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Second quarter sales up 7.0 percent to record $16.5 billion
DEERFIELD, Ill., March 23, 2009 - Walgreens (NYSE, NASDAQ: WAG) today announced earnings and sales results for the second quarter of fiscal year 2009.
Net earnings for the quarter ended Feb. 28 decreased 6.7 percent to $640 million or 65 cents per share (diluted), from $686 million or 69 cents per share (diluted) in the same quarter a year ago. Second quarter 2009 results include a negative impact of 6 cents per share (diluted) in costs and 2 cents in savings associated with the company's Rewiring for Growth restructuring program. Last year's quarterly results benefited from one extra day because of leap year.
First half net earnings decreased 8.2 percent to $1.05 billion or $1.06 per share (diluted) versus last year's $1.14 billion or $1.15 per share (diluted). First half 2009 results include a negative impact of 7 cents per share (diluted) in costs and 3 cents in savings associated with Rewiring for Growth.
"We made solid progress in the quarter executing our long-term growth strategies in a challenging retail environment," said Walgreens President and CEO Gregory D. Wasson. "With our new management team in place, we're implementing significant cost reductions, engaging our customers more effectively and broadening access to affordable health care."
Second quarter sales increased 7.0 percent from the prior-year quarter to a record $16.5 billion, and grew 6.8 percent to $31.4 billion for the first half. Sales in comparable stores (those open at least a year) increased 1.3 percent in the quarter, while comparable store front-end sales decreased 1.2 percent. Calendar shifts and last year's leap day negatively impacted total sales in comparable stores by 0.8 percentage points and front-end comparable drugstore sales by 1.0 percentage points.
Prescription sales, which accounted for 63 percent of sales in the quarter, climbed 7.8 percent, while prescription sales in comparable stores increased 2.9 percent in the quarter. The company's number of retail prescriptions filled increased 4.0 percent over last year's second quarter. That compares to an industry-wide decline of 1.0 percent (excluding Walgreens) during the same period, according to IMS Health and Walgreens figures. Calendar shifts and last year's leap day negatively impacted the number of prescriptions filled in comparable stores by 0.7 percentage points. Total prescriptions filled at comparable stores in the quarter were also negatively impacted by 1.6 percentage points due to more patients filling 90-day prescriptions versus 30-day.
Selling, general and administrative expense dollars in the second quarter increased 8.1 percent over the year-ago period, which includes 2.4 percentage points for Rewiring for Growth costs. Higher expenses were partially offset by tight controls on store salary costs.
Gross profit margins decreased 0.6 percentage points from the prior-year quarter to 28.3 as a percent of sales. Negatively impacting margins were lower front-end margins due to promotional pricing and product mix, non-retail businesses, and a higher LIFO provision of $49 million in this year's quarter versus a provision of $31 million in last year's second quarter. Helping overall margins were an increase in pharmacy margins as a result of the impact of generic drug sales.
Highlights of the second quarter:
Opened or acquired 57 drugstores for a net gain of 48 stores after relocations and closings. In the first half of the fiscal year, Walgreens opened or acquired 269 stores, compared with 282 in the year-ago period, with a net gain of 235 stores after relocations and closings.
Agreed to acquire 12 Rite Aid locations in San Francisco and eastern Idaho. Last week, Walgreens also agreed to acquire 32 Drug Fair drugstores across northern and central New Jersey along with pharmacy files for 11 other Drug Fair locations.
Opened 41 in-store Take Care Clinics for a total of 701 retail and worksite health and wellness locations.
Launched Complete Care and Well-Being, a cost-effective program targeted toward large employers that connects Walgreens retail pharmacies, in-store clinics, worksite health and wellness centers and its prescription drug offering.
Fully implemented its POWER pharmacy initiative in about half of its Florida stores, while also introducing key components of the new model in more than 30 Arizona locations. POWER is designed to enhance patient-pharmacist interaction and reduce costs.
Increased its Prescription Savings Club to 1.7 million members.
Restructured its field organization by deploying senior store operations management in local markets.
Successfully issued a $1 billion, 5.25 percent 10-year bond offering.
Began shipping from its new distribution center in Windsor, Conn. The new state-of-the-art facility was designed to be 20 percent more productive than the earlier generation of Walgreens distribution centers. As part of an ongoing initiative, employees with disabilities comprise more than 30 percent of the facility's workforce. Walgreens is a recognized leader in the support of disability programs.
"We believe the underlying strength of the best community-based retail network and the Walgreens brand, along with our lower cost structure and financial flexibility will enable us to emerge from the current challenging environment well positioned for the future," said Wasson. "We're committed to returning the company to strong double-digit earnings growth and top tier shareholder return."
Walgreens will hold a one-hour conference call to discuss the quarter's results beginning at 8:30 a.m. Eastern time today, March 23. The conference call will be webcast through Walgreens investor relations Web site at: http://investor.walgreens.com. This webcast will be archived on the site for 12 months after the call.
A replay of the conference call also will be available from 11:30 a.m. Eastern time, March 23, through March 30. The replay can be accessed at http://investor.walgreens.com or by calling 888-203-1112 within the U.S. and Canada, or 719-457-0820 outside the U.S. and Canada, using replay code 8668846.
This news release may contain forward-looking statements that involve risks and uncertainties. The following factors could cause results to differ materially from management expectations as projected in such forward-looking statements: seasonal variations, competition, risks of new business areas, the availability and cost of real estate and construction, and changes in federal or state legislation or regulations. Investors are referred to the "Cautionary Note Regarding Forward-Looking Statements" in the Company's most recent Form 10-K, which Note is incorporated into this news release by reference.
