Flu, Format Drive Walgreens To Record Earnings

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Between a hugely successful flu shot campaign and its revamped store format, Walgreen Co. says its focus on core consumer needs is paying off, with both sales and profits for the first quarter of its fiscal year hitting record levels.

Sales for the Deerfield, Ill.-based chain jumped 9.5% to $16.4 billion, while comparable-store sales gained 4.9%. Net earnings hit $489 million, for a 19.6% gain. The number of prescriptions filled jumped 12%, and overall, sales of prescriptions -- which represent 66.2% of sales -- climbed 10%. On a comparable-store basis, prescriptions gained 6.1%.

Some of the company's record results are directly linked to flu-fretting consumers: It says it jabbed 5.4 million flu shots into consumers' arms in the quarter, up from 1.2 million last year. In a conference call, President/CEO Greg Wasson says the success of its flu shot campaign proves that "consumers across the country value the services of community pharmacists. Our center of gravity continues to be the community pharmacy."

Wasson says it was the largest flu shot campaign in its history, and calls it "one of the best-executed initiatives in my 30 years at Walgreens." While it remains to be seen how many of those immunized will continue to patronize the chain, it did attract new customers: Two-thirds of those who came in for shots had not filled a prescription at Walgreens in the last six months.

The company also says it sees promising results from its Customer Centric Retailing format, which it continues to roll out chainwide. (This quarter, it converted 400 stores in Texas.) Wasson says the company is also now able to focus on tweaking these conversions for individual stores, including those serving primarily African-American, Latino or beach communities.

Walgreens has also been adding its new beer and wine selection -- including a private-label wine -- and now has nearly 1,600 stores with the products. It also launched a new brand campaign, "Walgreens. There's A Way" in September, and launched a retooled Walgreens.com.

Despite improved results, the company continues to be cautious in its assessment of the economy, consumer spending, and the holiday period. Unemployment dragged on sales at the end of November, Wasson says.

"We're going to continue to see a cautious consumer, so it's tough to predict," he says. "Traffic is up, although we're down a little bit in units per customer. We feel good that we are swinging doors and people are coming in, so we know we don't need to over-promote prices to get people inside."

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