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Bargain-Driven Shoppers Boost Walgreens Sales

Walgreens says sales in its fiscal third quarter hit a record $16.2 billion, an 8% jump from the prior year, with comparable-store sales climbing 2.8%. "These are solid results in a difficult economy," president and CEO Gregory D. Wasson told investors in a conference call. "We continue to see customers save more, use less credit and spend closer to payday," he says, "and while it's challenging, we're well positioned for growth."

Prescription sales, which accounted for 65.6% of the Deerfield, Ill.-based chain's sales, increased 8.2%, or 3.8% on a comparable store basis, exceeding the industry-wide growth rate by 5.7 percentage points. And sales of its private-label products are advanced 12%, also well ahead of its competitors.

Net earnings, however, declined 8.8% to $522 million, from $572 million, due to restructuring costs.

Wasson says that early indications on those restructuring efforts are promising. Its new "customer-centric retailing," recently introduced in 35 pilot stores, is performing ahead of expectations. The new format stores are more open and less cluttered, with better sight lines, and are designed to optimize assortments based on individual store needs, improve customer experience, drive higher sales, and lower costs.

So far, he says, the conversions, which take about one week, have been only minimally disruptive. "We plan to roll out another 400 this fall, break for the holidays, and then plan for a national rollout for 2010."

The company is also working to control inventory chainwide by paring back its assortment, and says it has reduced the number of SKUs by 18%. "We're not reducing SKUs just for reductions' sake, though. These are the assortments our customers want," he says.

Wasson is also guardedly optimistic about looming healthcare reform in Washington D.C., saying that "there are threats and opportunities. While there will be more focus on costs, which may pressure margins, one of the key principals seems to be prevention and wellness, and prescription drugs are a big part of that. Better prescription compliance is key to lowering healthcare costs."

In addition, he says the company, which runs more than 700 in-store clinics as well as 7,300 stores, has now trained 16,000 of its pharmacists to administer flu shots, that the nurse practitioners in its clinics can treat many routine family visits, and that it is targeting Type 2 diabetes as an area where it can be especially useful in lowering costs and improving care. "We are accessible and affordable providers of quality care, and we are pioneering new approaches to achieve better healthcare outcomes."