Walgreen Drops as Drugstore Chain's Profit Margin Falls Short of Estimates
Walgreen’s Profit Rises 10 Percent
JB Reed/Bloomberg
Walgreen Co. reported a 10 percent gain in second-quarter profit.
Walgreen Co. reported a 10 percent gain in second-quarter profit. Photographer: JB Reed/Bloomberg
Walgreen Co. (WAG), the largest U.S. drugstore chain, dropped the most since December 2008 in New York trading after second-quarter profit margin failed to improve as some analysts anticipated.
The shares fell $2.76, or 6.6 percent, to $39.21 at 4 p.m. in New York Stock Exchange composite trading. Second-quarter gross margin, or percentage of sales left after the cost of goods sold, was little changed at 28.8 percent, the company said in a statement.
Analysts at Barclays Capital and Citigroup expected gross margin would widen at the chain, which operates about 7,700 U.S. locations and filled one in five retail prescriptions last quarter. Rising commodity costs, including fuel, led Walgreen to adjust its accounting provision for the annual impact of inflation on its inventory, resulting in a quarterly charge of $56 million that hurt gross margin, said Wade Miquelon, chief financial officer.
The Deerfield, Illinois-based drugstore chain may face pressure ahead on Medicaid reimbursements from states strapped by budget deficits, said Chief Executive Officer Greg Wasson, on a conference call.
Walgreen also said today that second-quarter net income rose to 80 cents a share, matching the average of estimates in a Bloomberg survey.
Second-quarter sales advanced 8.9 percent to $18.5 billion, helped by its April acquisition of Duane Reade, which operates stores in the New York area. Net income rose 10 percent to $739 million in the period ended Feb. 28 from $669 million, or 68 cents a share, a year earlier.
The chain agreed this month to sell its pharmacy-benefit management business for $525 million to focus on its store network. Walgreen plans to complete the sale of the unit that negotiates drug prices for corporate and government insurance plans by June.
To contact the reporter on this story: Chris Burritt in Greensboro at cburritt@bloomberg.net
To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net
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