Internal Costs Impact Walgreens Earnings
Despite increases in prescription and overall sales, drugstore retailer Walgreen Co. saw
net earnings decline for Q2 and the first half of fiscal 2009. Walgreens cited the expense of its
Rewiring for Growth cost reduction/productivity improvement plan for about one-third of the earnings loss.
Q2 2009 (ended Feb. 28, 2009) Highlights
- Net earnings were $640 million, a 6.7% decrease from $686 million in Q2 2008.
- Sales were a record $16.5 billion, a 7% increase from a previous record $15.4 billion in Q2 2008.
- Comparable store sales increased 1.3%. This encompassed a 1.2% decrease in comparable front-end sales and 2.9% increase in comparable prescription sales, which accounted for 63% of total quarterly sales.
- SG&A expenses were $3.46 billion, an 8.6% increase from $3.19 billion in Q2 2008. Rewiring for Growth accounted for 2.4 percentage points, or approximately $945 million, of this increase.
- Gross profit margins were 28.3% of sales, as opposed to 28.9% of sales in Q2 2008. Walgreens cited lower front-end margins due to promotional pricing and product mix as one cause of the drop in gross profit.
During the quarter, Walgreens said it opened or acquired 57 drugstores, including 12
Rite Aid locations in Calfornia and Idaho. The company also closed nine locations for a net opening of 48 new stores. During the first half of fiscal 2009, Walgreens has opened or acquired 269 new stores, for a net opening of 235 new stores with 34 store closures. The company also opened 41 in-store
Take Care Clinics for a total of 701 retail and worksite health and wellness locations.
During February 2009, Walgreens experienced a 1.9% drop in
comparable store sales, as opposed to a 0.4% climb in January 2009. Rival Rite Aid reported a 0.9% decline in February, compared to a 1% gain in January. CVS, which has not yet released February 2009 figures, reported a 3.6% increase in January.
Last week, Walgreens announced it would
purchase the assets of 32 New Jersey store locations from bankrupt drugstore retailer Drug Fair. This followed the previous purchase of prescription files from 11 Drug Fair locations. In December 2008, Walgreens announced it would
slow down the pace of planned store openings during the next few years following a 10.4% decline in quarterly profits, but said it would continue opening new stores that offered the greatest rates of return.
Walgreens reported fiscal 2008 sales of $59 billion and operates 6,679 drugstores in 49 states, the District of Columbia and Puerto Rico.
