In its third quarter, Walgreen generated earnings of $411 million, or $0.40 per diluted share. That's a healthy increase of 20.1% over last year, and was helped by a later flu season this year. Sales were also higher, increasing 13.1% to $10.8 billion. Comp sales, which include only those locations that have been open for at least a year, climbed 8.7% overall.
Walgreen continued to benefit from its strong pharmacy business. It expanded its pharmacy market share in the first three months of 2005 in every state in which it operates. Prescription sales climbed 14% and accounted for 65% of total sales in the quarter. These positive trends should continue for some time, considering the company controls about two-thirds of all retail prescription growth in a couple of key states, including the mature Florida market.
The company's gross margins also remain healthy, increasing 94 basis points to 27.85%, thanks in large part to an increase in the sale of generic drugs. Although generic drug sales slowed total sales growth due to their lower prices, their higher margins boosted the bottom line.
But there is more to Walgreen than prescriptions. The company has benefited handsomely from its investment in digital photography printing. The investment in the new technology may have hindered growth in the second quarter, but it is now reaping rewards.
Walgreen also hopes to regain the top spot from CVS
Walgreen is clearly well-positioned as a dominant player in a lucrative market that includes other heavyweights like Wal-Mart
Philip Durell of Motley Fool Inside Value has access to much cheaper prescription drugs up in Canada, where he lives. As a value guy, that pleases him.
Fool contributor Mike Cianciolo welcomes feedback and doesn't own any of the companies in this article.