DEERFIELD, IL-In a word, the growth strategy for the expanding Walgreens chain is stores, according to remarks by company president Greg Wasson Monday as the expanding drug chain reported record sales and earnings for the latest full year that ended Aug 11. Wasson, commenting in a conference call with financial investors, mentioned stores in each of the elements of a three-part growth strategy that he outlined.
“We have a three-part strategy for growth, and the first part is to continue what we do best, grow stores,” the Walgreens president said. “We're committed to organic store growth, yet at the same time we're more open to acquisitions when the right opportunity arises.”
The second part of the Walgreens growth strategy is expanding into adjacent sectors of pharmacy and health care service at its stores. For example, in August the company acquired Option Care Inc., a national specialty pharmacy and home infusion services provider. The move made it the fourth-largest specialty pharmacy provider in the country and the largest home infusion provider.
Wasson described the third part of the chain's growth strategy as “using our existing store space to drive customer traffic through new services, like printer cartridge refills and convenient care clinics.” The chain has more than 65 clinics open today and has set a goal of having more than 400 open by the end of calendar 2008.
The three-part strategy is designed to build upon a store base of 5,997 at the end of the latest fiscal year, a year in which the Walgreens expansion program added 536 new stores, including acquisitions. The company anticipates opening 550 new stores in fiscal 2008, with a net increase of more than 475 stores after relocations and closings. Company officials say that Walgreens is on track to exceed its goal of operating 7,000 stores in 2010.
The chain also announced plans for expanding the number of locations of its Take Care Health Systems, the wholly owned subsidiary of Walgreens that manages the clinics. Take Care is opening clinics in nine new markets this fall, including Cincinnati, Cleveland, Houston, Las Vegas, Miami, Nashville, TN, Orlando and Tampa, FL and Tucson, Ariz. Combined with expansion in existing markets, up to 100 new Take Care Health Clinics will open this fall.
The financial results for the full year showed that Walgreens posted its 33rd consecutive year of record earnings and sales, although the company also reported a decline in fourth quarter earnings that it attributed in part to lower reimbursements on some popular generic drugs, along with higher expenses. Fiscal year net earnings increased 16.6% to $2 billion versus last year's $1.75 billion.
Net earnings per share for fiscal 2007 increased 18% to $2.03 per diluted share versus $1.72 per share the previous year. Net earnings for the fourth quarter declined 3.8% to $397 million or 40 cents per share versus last year's $412 million or 41 cents per share. Sales rose 10.3% to $13.4 billion in the fourth quarter and 13.4% to $53.8 billion for the year. Total sales in comparable drugstores were up 6.3% for the quarter and 8.1% for the year.
Walgreens chairman Jeffrey A. Rein said that the fourth quarter suffered from lower generic drug reimbursements, combined with higher salary and store expenses, plus higher advertising costs. “Our expenses weren't in line with the level of reimbursements we were receiving,” Rein commented. “Managing both expenses and lower reimbursements on some generic drugs is my top priority. We're going to fix this, and at the same time continue our aggressive growth plan.”
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