Walgreen profits minus liquor sales

Walgreen earnings

First-quarter earnings at drugstore chain Walgreen Co. jumped 23 percent due to soaring prescription sales, meeting analysts' expectations.

Earnings for the three months ended Nov. 30 were $127.8 million, or 13 cents per share, up 23 percent from $104 million, or 10 cents per share, for the same period a year earlier.

That matched the estimate of 13 cents per share by analysts surveyed by First Call/Thomson Financial.

The strong performance comes with Walgreen in the midst of rapid expansion. The Deerfield-based company said it opened 94 stores in the first quarter of its 2000 fiscal year.

Sales for the first quarter rose 20 percent to a record $4.82 billion, up from $4.02 billion in the year-ago period.

The company operates some 2,900 drugstores in 40 states and Puerto Rico. It said it will top the 3,000-store mark this spring.

Las Vegans shopping for liquor at Walgreen Drug Stores will leave empty-handed.

Unlike major competitors Rite-Aid Corp. and Sav-On Drugs, Walgreen's doesn't stock alcoholic beverages in its local outlets.

"We've simply made a decision not to sell alcohol in our 26 Las Vegas stores," said Yvette Venable, spokeswoman for the Deerfield, Ill.-based company. "We've decided that we can use the space better by offering customers other products."

She said Las Vegas souvenirs are among the goods stocked in place of alcohol at local Walgreen stores.

Venable said decisions about the sale of alcohol are made on a case-by-case basis in markets nationwide. She said most new Walgreen locations will not include a liquor department.

Walgreen Chief Executive L. Daniel Jorndt told the Chicago Tribune last year that liquor takes up a lot of space, has very low profit margins and faces continued declines because of a national decline in liquor consumption -- particularly among young people.

"Ten years ago, we absolutely were the largest liquor retailer in America," he told the Tribune. "(But) we needed more space for vitamins, we needed more space for convenience goods, we needed more space for photo-finishing."

Walgreen currently operates 2,894 retail stores nationwide; Camp Hill, Pa.-based Rite-Aid has 3,800 outlets.

And though they compete for the same customer, Walgreen's main Las Vegas opponents don't share their rival's temperate views.

Rite-Aid spokeswoman Jody Cook said her company sells a wide range of alcoholic beverages at its Las Vegas operations.

"Most of our Las Vegas stores offer wine, beer and liquor to customers," she said. "I believe we don't sell liquor at some stores simply because we haven't yet been able to obtain a licence to do so."

Rite-Aid currently operates 30 stores throughout Metropolitan Las Vegas.

Boise, Idaho-based Albertson's, Inc., who recently acquired Sav-On Drugs as part of its purchase of American Stores Co., also sells alcoholic beverages in its Las Vegas-based drug stores and supermarkets.

Albertson's spokeswoman Ann Alenskis said local laws dictate her company's policy about liquor sales.

"We review the availability of a liquor licence based on the laws of local city, county and state governments," she said. "In several markets outside Las Vegas, we also have separate stand-alone Albertson's brand liquor stores. Again, local regulations help determine whether we offer those types of stores."

Beer, wine and liquor are sold at the 41 Sav-On Drug Stores and 28 Albertson's locations in Metropolitan Las Vegas, she said.

Alenskis said the nation's second largest supermarket chain believes liquor sales are an integral part of its ability to provide customers with "one-stop shopping."

"We view it (alcohol sales) in much the same way we do our video department," she said. "It's an added shopping convenience we can offer our customers."

Alenskis and Cook declined to reveal the percentage of in-store revenues generated by alcohol sales.

However, Walgreen's Venable said prescription drugs account for 52 percent of retail sales; general merchandise constitutes 28 percent of in-store sales, non-prescription drugs 12 percent and cosmetics 8 percent.

Derek Leckow, an industry analyst with Barrington, Ill.-based Barrington Research Associates, said Walgreen's decision to move away from liquor sales might be a portend for the drug store industry.

"Walgreen has very sophisticated sales analysis, and the decision to use in-store space for purposes other than alcohol would be justified by that research," he said. "They have typically been an industry leader in terms of detailed (sales) analysis. Their successful new initiatives are often copied (by other drug stores)."

While problems at Rite Aid are forcing the company to audit past financial results that apparently were overstated by $500 million over the past three fiscal years, Walgreen has impressed market watchers with its stock performance, Leckow said.

"Their (Walgreen) stock has done well as of late," he said. "The market was concerned about the industry as a whole (last year), in part because of Rite Aid's financial problems."

Rite Aid stock closed Friday at $7.90, well off its 52-week high of $50.63 but up from its 52-week low of $4.50; while Walgreen shares closed Friday at $29.43, down from their 52-week high of $33.52 but well above the 52-week low of 22.69.

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