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Walgreen fiscal 4Q profit soars 86 percent

Published: Tuesday, Oct. 1, 2013 5:24 p.m. CDT
Caption
(AP file photo)
The sun rises behind a Walgreens drug store in Omaha, Neb., in February. Walgreen Co.'s fiscal fourth-quarter earnings soared 86 percent, as the nation's largest drugstore chain booked a big inventory-related gain and benefited from its acquisition of a stake in European health and beauty retailer Alliance Boots.

DEERFIELD – Walgreen Co.’s fiscal fourth-quarter earnings soared 86 percent, as the nation’s largest drugstore chain booked a big inventory-related gain and benefited from its acquisition of a stake in European health and beauty retailer Alliance Boots.

The Deerfield company said Tuesday that it filled more prescriptions in this year’s quarter and saw some improvement from the store area outside the pharmacy.

It also reaped a greater benefit than it expected from its combination with European health and beauty retailer Alliance Boots. Walgreen bought a 45 percent stake in that company last year and has an option to buy the rest of the business in 2015.

Alliance Boots runs the largest drugstore chain in the United Kingdom.

Overall, Walgreen earned $657 million, or 69 cents per share, in the quarter that ended Aug. 31. That compares with earnings of $353 million, or 39 cents per share, a year ago. Revenue climbed 5 percent to $17.94 billion.

Adjusted earnings totaled 73 cents per share, excluding acquisition-related costs among other items.

Analysts forecast earnings of 72 cents per share on $17.96 billion in revenue, according to FactSet.

Walgreen shares climbed 4 percent, or $2.17, to $55.97 in afternoon trading Tuesday while the Standard & Poor’s 500 index rose less than 1 percent.

The drugstore chain recorded an $8 million “last-in-first-out” inventory benefit in this year’s quarter, compared with a $132 million charge last year. LIFO is a method of accounting for inventory that assumes a company sells its newest inventory first. The company takes a credit or charge each quarter according to the anticipated inflation rate for the year.

The company attributed the big swing to lower-than-anticipated prescription drug inventory ahead of a transition it made to drug distributor AmerisourceBergen Corp. Walgreen said earlier this year that it was buying an ownership stake in AmerisourceBergen and also entering into a supply agreement with the company for its drugstores, mail order and specialty pharmacy businesses.

Last year, Walgreen acquired its stake in Swiss-based Alliance Boots for about $4 billion in cash plus 83.4 million Walgreen shares. Walgreen booked $124 million in equity earnings from that stake in this year’s quarter.

It also said it achieved $154 million in savings and additional revenue from its partnership with the company. That’s higher than its previous estimate for $125 million to $150 million.

In last year’s quarter, Walgreen also absorbed about 9 cents per share in costs tied to that deal, which affected its comparison with this year’s quarter.

Walgreen runs the nation’s largest chain of drugstores, with 8,116 locations nationwide.

Revenue from stores open at least a year climbed 4.6 percent in the quarter. Prescription sales, which accounted for about 64 percent of the company’s revenue, were up 6.1 percent. Revenue from the front end, or rest of the store, rising 1.6 percent.

Revenue from established stores is considered a key indicator of a retailer’s health, because it excludes the impact from recently opened or closed stores.

Analysts have been concerned about Walgreen’s sluggish performance in the front end of its stores, and profitability from that part of the business slipped in the fiscal fourth quarter. But company officials told analysts Tuesday that they have increased their spending on promotions, and they are using data culled from a customer loyalty program Walgreen started last year to shape marketing to bring more people into its stores and increase how much they buy.

For fiscal 2013, Walgreen, earned $2.45 billion, or $2.56 per share, on $72.22 billion in revenue.

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