Walgreen Matches Estimates on Solid Growth

Walgreen (NYSE: WAG  ) reported fiscal first-quarter earnings this morning, meeting Wall Street's expectations on both the top and bottom line. Revenue was up 5.9% to $18.3 billion, with a 2.4% increase in front-end comparable-store sales at locations open at least one year. Comparable-store prescription sales rose 7.2% as Walgreen gained share in the prescription market.  

Net income was up 68% to $695 million, or $0.72 per share. Management was able to lower SG&A expenses to 23.9% of sales from 25.4% a year ago, meaning more revenue flowed to the bottom line.

The good news for the retailer is that prescriptions filled rose 5.8% in the quarter to 213 million, much higher than the 2.9% growth in the industry. That's a strong sign because prescriptions account for 64.7% of sales. It also means the company is taking customers from competitors and drawing them in for front-end purchases as well.

Shares aren't cheap at 16 times this year's estimates, but Walgreen is well positioned to capture a large percentage of the prescription market, as well as front-end sales from the urbanization of the U.S. In the long term, those trends will be great for investors.

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