Walgreen Sells Convenience

Drugstore operator Walgreen (NYSE: WAG  ) has so much going for it, I don't know why I bother investing in other retail companies.

Yesterday's third-quarter results confirmed that Walgreen is still growing briskly and has ample room to blanket the country with new drugstores. Sales continued their consistent upward growth trend, rising a solid 12.5%, and the bottom line was boosted more than 20% by a few one-time benefits.

Pharmacy sales usually account for the bulk of a drugstore's sales, but they carry lower margins since large health plans, such as Motley Fool Inside Value pick UnitedHealth Group (NYSE: UNH  ) , and government programs use their clout to keep prices low. For the quarter, prescription sales climbed 13.8% and accounted for 65.9% of total revenue.

Walgreen's other source of income -- non-prescription revenue, which consists of food, cosmetics, and just about any household item you can think of -- is in its fourth consecutive year posting comps in excess of 5%. Continuing that trend, the company reported front-end comparable sales of 5.6% for the quarter. These sales are quite profitable for drugstores, as consumers are willing to pay a premium for the convenience of heading to a smaller, free-standing store as opposed of having to park and make the hike to a Wal-Mart (NYSE: WMT  ) or Target (NYSE: TGT  ) . Overall, margins improved from the company's shift in mix toward additional higher-margin merchandise.

If you're familiar with Walgreen, the solid quarter should come as no surprise; the company has posted double-digit sales and earnings growth for decades. Store count recently came in at just less than 5,800, and management plans on operating 7,000 locations by 2010, with 500 scheduled over the span of the current fiscal year.

In other words, Walgreen is among the most consistent retail companies you will find, and investors can expect more of the same for the foreseeable future. Archrival CVS (NYSE: CVS  ) has also posted impressive growth but tends to rely on riskier acquisitions, as does Rite Aid (NYSE: RAD  ) , although its profit track record is much more dubious.

Drugstores in general should continue to rack up higher sales. In addition to opening new stores, they'll benefit from aging baby boomers, who will increasingly pop pills to stay healthy and active well into their golden years.

For related Foolishness:

Wal-Mart and UnitedHealth areInside Value recommendations. UnitedHealth is also a Stock Advisor pick.

Fool contributor Ryan Fuhrmann is long shares of Walgreen but has no financial interest in any other company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.

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