Walgreen Profit Declines on Duane Reade Costs

Photographer: JB Reed/Bloomberg

A sign sits at the Walgreen's pharmacy in New York. Close

A sign sits at the Walgreen's pharmacy in New York.

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Photographer: JB Reed/Bloomberg

A sign sits at the Walgreen's pharmacy in New York.

Walgreen Co., the largest U.S. drugstore chain, said third-quarter profit declined 11 percent as the company remodeled stores to spur sales growth. The shares fell 6.5 percent.

Net income dropped to $463 million, or 47 cents a share, from $522 million, or 53 cents, a year earlier, Walgreen said today in a statement. Excluding certain costs, profit was 53 cents for the three months ended May 31. Analysts projected 58 cents, the average of estimates compiled by Bloomberg.

A sluggish economy and a slowdown in the introduction of new generic drugs made the quarter challenging, Walgreen Chief Executive Officer Greg Wasson said. The Deerfield, Illinois- based company is working to reduce overhead expenses by $500 million this fiscal year, while spending as much as $55,000 a store to convert the chain to a new format.

“We expected these headwinds and are continuing our relentless focus on cost reductions,” Wasson said on a conference call. Lowering shelves in stores and expanding private-label goods will help boost sales next year, he said.

Walgreen fell $1.97 to $28.17 at 4:01 p.m. in New York Stock Exchange composite trading. The shares have declined 23 percent this year.

Duane Reade

Sales at stores open at least a year rose less than 1 percent in the quarter, excluding the Duane Reade Holdings Inc. chain that Walgreen purchased in April. Total revenue increased 6.1 percent to $17.2 billion.

The acquisition of Duane Reade, which has more than 250 outlets, shaved 2 cents a share from earnings. Changes in Medicare reimbursement policies clipped profit by 4 cents.

Earnings in the year earlier period were boosted by sales of over-the-counter remedies to fight the H1N1 flu virus.

CVS Caremark Corp., the biggest distributor of prescription drugs, and Walgreen resolved a dispute this month over reimbursement policies at CVS Caremark’s benefits plans. Walgreen had threatened to withdraw from CVS Caremark’s retail pharmacy network, which has more than 64,000 stores.

(Walgreen held a conference call at 8:30 a.m. available on http://investor.walgreens.com.)

To contact the reporter on this story: Carol Wolf in Washington at cwolf@bloomberg.net.

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