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Restructuring costs dampen Walgreens earnings despite solid sales

BY Allison Cerra

DEERFIELD, Ill. Walgreens reported a 9% loss in third-quarter sales this year, despite having a strong cash flow from improved inventory management.

Net earnings for the quarter ended May 31, were $522 million, or 53 cents per share (diluted), including an impact of 6 cents in costs and 6 cents in savings associated with the company’s Rewiring for Growth and Customer Centric Retailing  initiatives. This reflects an 8.8% decrease from $572 million, or 58 cents per share (diluted), in the same quarter a year ago.

Excluding restructuring costs (6 cents per share), earnings would have been up slightly, roughly a penny per share.

Meanwhile, cash flow from operations for the quarter increased 54% over last year’s quarter to $1.5 billion.

“We’re generating strong cash flow, despite the ongoing challenging economic climate,” said Walgreens president and CEO Greg Wasson. “Our cash performance is a direct result of our strategies, creating a virtuous circle that allows us to invest back into those strategies and deliver value to shareholders.”

Walgreens said its same-store sales, or revenue from locations open at least one year, rose 2.8%. That includes growth of 3.8% in pharmacies, where Walgreens makes about two-thirds of its sales, and a decrease of 0.9% at the front-end of the stores.

During the quarter, Walgreens rolled out its new CCR format to 35 pilot stores, which are performing ahead of plan. In addition, optimized assortment resets were completed for nearly 40 product categories nationwide.

The Rewiring for Growth initiative is on pace to reach $1 billion in annual cost reductions and productivity gains beginning in 2011.

“We’re executing on our key initiatives,” said Wasson, “and we’re encouraged by early results on several recently launched programs, including our CCR and Rewire initiatives.”

Among other quarter highlights, the company acquired 40 drug stores, including 29 Drug Fair stores in central and western New Jersey and eight Rite Aid locations in San Francisco and eastern Idaho. It also acquired the home infusion and respiratory therapy operations of Pennsylvania-based Air Products Healthcare.

As of May 31, Walgreens operated 7,361 locations in 49 states, the District of Columbia, Puerto Rico and Guam. That includes 6,857 drug stores, as well as worksite health-and-wellness centers; home care facilities; and specialty, institutional and mail-service pharmacies. Its Take Care Health Systems subsidiary manages 716 in-store convenient care clinics and worksite health-and-wellness centers.

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Zicam maker responds to FDA warning letter

BY DSN STAFF

NEW YORK With the agency’s latest warning letter, one thing is becoming clear: There’s a new sheriff in town. And this sheriff isn’t packing a pea-shooter.

 

Within eight weeks, the Food and Drug Administration has issued two warning letters to two companies initiating two voluntary product recalls in the over-the-counter self-care arena.Critics have been clamoring for a more aggressive and decisive FDA for some time, pointing to public-safety snafus like the contaminated heparin that leaked into the U.S. market, or the recent pervasive peanut recall prompted by salmonella contamination.

 

But swinging to such an extreme, heavy-handed approach may have its own adverse events.

For starters, there is potential collateral damage to industries on the whole. The publicized warning letters that resulted in the recall of a number of Hydroxycut products and a pair of Zicam SKUs has called into question the regulation and safety of the dietary supplement and the homeopathy industries, respectively. An Associated Press report published Thursday was critical of both industries. And debating whether or not that writer was entirely accurate in his depiction of the industry is of no consequence. The fact is the AP reaches more than 7,500 consumer media outlets between paper, radio and television. And who doesn’t believe what they read?

Then there is the actual question as to how heavy is heavy-handed? The Hydroxycut recall was based on 23 adverse event reports; Zicam a little more than 130. Even considering that those events are typically under-reported, they are nowhere near the 13,000-plus adverse events associated with Metabolife’s ephedra supplements that prompted the agency several years back to issue an out and out sales ban on that ingredient. Factor in the number of doses consumed by millions over the years for each of the ingredients, and the corresponding adverse events may seem less dramatic, and certainly less than what’s accepted across other product categories.

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Wegmans set to open store in Va.

BY Michael Johnsen

FREDERICKSBURG, Va. Wegmans announced earlier this week that it will open the doors to its new 138,655-sq.-ft. Fredericksburg, Va., location this Sunday.

The Fredericksburg store, which employs 500, will be open seven days a week from 6 a.m. until midnight. The store’s pharmacy also will be available to customers every day of the week, operating from 8:30 a.m. to 9 p.m. on weekdays.

The store’s Market Cafe offers restaurant-quality foods prepared by executive chef Douglas Jarman and his staff. Everything from specialty coffee drinks to hot panini sandwiches, burritos, an Asian-inspired Wokery Bar, freshly made sushi, pizza and subs is available in the cafe. Customers can choose to take out or dine in at the mezzanine-level cafe, with indoor and outdoor seating for 500. There’s also a Food Bar that seats 19, where chefs prepare fresh seafood and meat dishes made to order.

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