Walgreen Shares Gain on Strong Results

The drugstore chain has attracted new customers under the Medicare Part D drug benefit

Walgreen (WAG) on Dec. 22 announced stronger quarterly earnings, as the Deerfield, Ill.-based drugstore chain sold more generics and other items.

Walgreen's net earnings for the quarter ended Nov. 30 were up 24.9% to $432 million compared to the same period last year. The results come as new prescription drug coverage introduced this year transforms the pharmacy industry.

"This quarter's results show the strength of our core drugstore business," said Chairman Dave Bernauer in a press release. "They also demonstrate our success in attracting new pharmacy patients under the Medicare Part D drug benefit." Medicare Part D is a type of prescription drug coverage introduced in 2006.

Walgreen's quarterly sales grew 16.6% year over year to a record $12.7 billion. Its sales at stores open more than a year were up 9.7% during the quarter. Prescription sales, which accounted for 65.7% of its sales in the quarter, climbed 18.7%.

"We're earning less money on prescriptions for Medicare Part D patients who previously paid cash for their medications, but overall the program has benefited us because of the increased business we're attracting under it," said Walgreen CEO Jeffrey A. Rein.

Walgreen also said it plans to open 500 new stores in the fiscal year ended August, 2007, for a net increase after relocations and closings of more than 400 stores.

Investors bid up the stock 2.1% to $46.90 per share in afternoon trading on the New York Stock Exchange.

"We believe Walgreen is well positioned to benefit from favorable traffic trends due to new Medicare legislation, and from continued acceleration in growth of generic drug sales," said Standard & Poor's equity analyst Joseph Agnese. (S&P, like BusinessWeek.com, is owned by The McGraw-Hill Companies.) Agnese raised his fiscal 2007 earnings estimate, bringing a 12-month target price up by $2 to $53.

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