Walgreen (NYSE:WAG), a company that has built a business largely on prescription drugs, reported its 30th consecutive year of record sales and earnings today. Fourth-quarter earnings grew to $0.32 per share, which was an 18% improvement over last year's $0.27 and bested the analysts' consensus estimate of $0.31 per share. The company's sales rose 14%, and its same-store sales advanced nearly 10%. Prescription sales, about 63% of total Walgreen sales, climbed 16% in the quarter and were supported by same-store sales of 13%.

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 (NYSE:CVS) and Rite Aid (NYSE:RAD), discount retailers Wal-Mart (NYSE:WMT) and Target (NYSE:TGT), and warehouse retailers Costco (NYSE:COST) and BJ's Wholesale Club (NYSE:BJ). The company has adhered to its prescription strength and successful expansion strategy, and it should benefit from a competitive industry that is bound to consolidate. With a bundle of cash to plow back into its business and an extremely effective management team, Walgreen remains the top dog in the drugstore industry.

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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.