DEERFIELD, Ill., December 22, 2010 - Walgreens (NYSE: WAG)(NASDAQ: WAG):
. First quarter sales increase 6.0 percent to record $17.3 billion
. Gross profit margin improves 80 basis points versus last year’s first quarter
. Cash flow from operations for the quarter totals $1.2 billion
Walgreens (NYSE: WAG)(NASDAQ: WAG) today announced record earnings and sales for the first quarter of fiscal year 2011.

Net earnings per diluted share for the quarter ended Nov. 30 increased 26.5 percent to 62 cents, compared with 49 cents per diluted share in the year-ago quarter. Last year’s results include the impact of 3 cents per diluted share in restructuring and restructuring-related costs associated with the company’s Rewiring for Growth initiative. Net earnings were $580 million, an 18.8 percent increase from $489 million in the same quarter a year ago.

“We’re very pleased to report strong earnings growth this quarter,” said Walgreens President and CEO Greg Wasson. “Our performance was driven by our continued focus on gross profit margins, cost control and the strategic slowing of our new store openings. As a result of improved merchandising, including promotions and pricing, we saw significant increases in gross profit margins in the front end. We also generated $1.2 billion in cash flow from operations, reflecting our overall strong drugstore performance.”

During the first quarter, the company bought back $510 million in company stock as part of its share repurchase programs.

Sales

First quarter sales increased 6.0 percent from the prior-year quarter to $17.3 billion. Total sales in comparable stores (those open at least a year) increased 0.8 percent in the quarter, while front-end comparable store sales increased 0.4 percent. (Duane Reade stores are not included in any comparable store sales results.)

Prescription sales, which accounted for 65.8 percent of sales in the quarter, climbed 5.3 percent, while prescription sales in comparable stores increased 0.9 percent. The company filled 202 million prescriptions, an increase of 4.6 percent over last year’s first quarter including 0.8 percentage point due to more patients filling 90-day prescriptions. The company exceeded by 2.6 percentage points the industry-wide prescription growth rate, excluding Walgreens, during the same period as reported by IMS Health. As of Nov. 30, Walgreens increased its retail prescription market share 40 basis points from a year ago to 19.7 percent.

Flu Shots

Flu shots administered at pharmacies and clinics this flu season through Nov. 30 totaled 5.6 million, slightly more than during last year’s fiscal first quarter. “While it remains to be seen how the flu shot season will ultimately play out, through the strong support of our vendors and an inventory write-off of 2 cents per diluted share this quarter, we face minimal inventory risk for the remainder of the season,” said Wasson.

“Today, outside of the federal government, Walgreens is providing more flu shot immunizations than any other single entity in the country. And, despite fewer Americans getting flu shots this year as a result of a slow start to the season, we’re pleased to have immunized more people through the end of the first quarter compared with a year ago, when a separate H1N1 flu shot also was needed.”

Gross Profit

Gross profit margins increased 80 basis points versus the year-ago quarter to 28.5 percent. Front-end margins benefited from better promotions and pricing, as well as fewer inventory write-downs compared with the year-ago quarter. Pharmacy margins slightly increased with the positive impact of generic drug sales, partially offset by market reimbursements. Total gross profit dollars increased $407 million, or 9.0 percent, in the quarter, of which 3.4 percentage points was attributable to Duane Reade.

The LIFO provision was $42 million this year versus $34 million last year.

SG&A
Selling, general and administrative expenses in the first quarter grew $263 million, or 7.0 percent, over the year-ago period. Duane Reade costs accounted for 4.3 percentage points of the increase, while new store openings resulted in 3.0 percentage points of the growth. All other expenses, including comparable store and headquarter expense, declined 0.3 percentage point. With the company in the final year of its Rewiring for Growth initiative, Walgreens is on track to achieve its targeted $1 billion in savings in fiscal 2011.

The company opened or acquired 121 new drugstores (a net gain of 89 after relocations and closings) in the quarter compared with 172 (or a net gain of 150) in the year ago quarter. Walgreens expects organic store growth of between 2.5 and 3 percent in 2011.

Looking Ahead
“We continue to make solid progress on our key initiatives,” said Wasson. “Our performance during the fiscal second quarter is typically driven by Christmas sales and the cold/flu season, which are difficult to predict. In addition, persistent high unemployment makes this a challenging retail environment during the holiday season. December sales once again will be largely influenced by the final days, which makes this an important week. With the convenience of our 7,600 stores open Christmas Eve and Christmas Day, we’re an ideal destination for last-minute shopping needs.”

At Nov. 30, Walgreens 244,000 employees operated 8,133 locations in all 50 states, the District of Columbia, Puerto Rico and Guam. The company has 7,651 drugstores nationwide, including 122 hospital on-site pharmacies. Walgreens also operates worksite health centers, home care facilities, and specialty and mail service pharmacies. Its Take Care Health Systems subsidiary manages more than 700 in-store convenient care clinics and worksite health and wellness centers.

Walgreens will hold a one-hour conference call to discuss the first quarter results beginning at 8:30 a.m. Eastern time today, Dec. 22. The conference call will be simulcast through Walgreens investor relations Web site at: http://investor.walgreens.com. A replay of the conference call will be archived on the Web site for 12 months after the call. A podcast also will be available on the investor relations Web site.