The company claims that higher co-pays have threatened to weaken the prescription drug environment, but it has still seen continued strong demand. Management sees long-term prescription growth driven by "aging baby boomers and new drug development," as well as improving health-care cost controls. Also, Walgreen has had success in its Advantage90 prescription program, which gives customers a cost-effective alternative to mail programs.
Walgreen moved quickly to replace older analog photofinishing equipment with digital machines that improved the department's efficiency (and aided gross margin expansion). The company said it gained market share against all food, drug, and mass merchandise competitors over the past year in 59 out of 60 product categories. Walgreen is doing so well that it even reaped some benefits from a recent hurricane, as its top non-prescription sales markets were in the path of one of these storms.
Expansion has been the name of the game for Walgreen: It added 208 new stores in the fourth quarter and 436 stores in fiscal 2004. The company's rapid growth created 9,000 new jobs in fiscal 2004, and it plans to generate a similar amount of jobs in fiscal 2005. Walgreen expects to add about 450 stores in fiscal 2005 (net of about 365 after store closings) and has budgeted roughly $1.5 million for capital investments (focused on real estate purchases, technology, and distribution upgrades).
Walgreen charged to the top of its industry despite a crowded landscape, which includes drugstore retailers CVS
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Fool contributor Phil Wohl spent more than 12 years on Wall Street and likes to buy soap and shampoo at the drugstore. He does not own shares of any of the company mentioned.