Prescriptions Drive Walgreen Profits

Deerfield, Ill. Walgreen posted a 5% rise in second-quarter profits that just beat Wall Street's expectations, but investors greeted the news Monday with enthusiasm, driving the share price sharply higher.

The drug store chain said improved cost controls helped offset sluggish holiday sales.

Walgreen reported earnings of $685.9 million, up from $651.9 million a year ago.

Sales rose 11% to $15.39 billion, from $13.93 billion. Same-store sales gained 4.7%.

The company opened 121 new stores in the quarter and had a net gain of 240 stores after relocations and closings in the first half of the year. It is on track to open 550 new drug stores this year, with a net increase of more than 475.

Walgreens said it slowed operating expense growth to 11%, from more than 21% a year earlier. Part of the reduction was achieved by adjusting store hours.

Prescription sales, which accounted for just under two-thirds of Walgreen's revenue in the quarter, grew 11% in the quarter.

In a conference call with analysts, Walgreen executives said the company had just reached a deal to sell specialty pharmacy services— drugs and consultation for patients with illnesses such as cancer and arthritis—to health insurance-plan provider Prime Therapeutics, which manages health plans for 20 million people.