Fellow Fool Ryan Fuhrmann wondered last week whether Walgreen
While third-quarter earnings slipped to $0.40 from $0.41 in last year's fourth quarter, yearly earnings grew 16%, which is right on track with the company's historical 16% annual earnings growth over the past five years. Additionally, sales rose 10.3% for the quarter and 13.4% for the year. Plus, the company posted another round of impressive comps.
Management cited lower reimbursements for generic drugs and higher salary and store expenses as the culprits. Those issues are hard to reverse. Even President Greg Wasson said that it's difficult to increase profits from generics after they have been available for a few months. This was evident as Walgreen's gross profit dollars fell for the drug simvastatin, although the company filled almost three times as many prescriptions.
Of course, this is out of the company's hands, so why would the shares tumble so sharply on news that doesn't seem that bad?
Well, Walgreen might just be beginning to feel the competition heat up. The company and its rivals CVS
So with the heightened competition, expenses rising more than 11%, and the company itself predicting its challenges will probably continue into the near future, I think Walgreen needs some time to recover. Management says it can fix its problems and is focusing on those two major issues. For now, it's best to wait and see whether management can come up with the right routine of diet and exercise to cure the company of its problems.
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