June 23 (Bloomberg) -- Walgreen Co., the largest U.S. drugstore chain, said profit rose 2 percent, helped by sales of allergy medicine and food as it limited cost increases.
Third-quarter net income climbed to $572.3 million, or 58 cents a share, and revenue advanced 9.6 percent, the Deerfield, Illinois-based company said today. Sales of merchandise at stores open at least a year gained 4.6 percent in the three months ended May 31, helping send the shares up as much as 2.8 percent.
Shoppers limited car trips to grocers after gasoline prices topped $4 a gallon, buying milk and other items at drugstores while picking up their medicines. Allergy drug Zyrtec, which no longer requires a prescription, buoyed sales. Walgreen said it cut advertising costs and tamed growth in salary expenses.
Walgreen is ``positioning themselves here to come out of this economic slowdown in really good shape,'' David Magee, an analyst at SunTrust Robinson Humphrey Capital Markets in Atlanta, said in a Bloomberg Radio interview.
Mounting U.S. job losses and the worst housing slump since the Great Depression pushed consumer confidence in May to its lowest level in 28 years.
Growth in merchandise sales is the ``most economically sensitive, and it still grew about 5 percent,'' said Magee, who recommends investors buy the company's shares.
Walgreen climbed 51 cents, or 1.5 percent, to $35.58 at 11:02 a.m. in New York Stock Exchange composite trading. Earlier the shares advanced to $36.05, the biggest one-day gain since March 24. The stock has lost 7.9 percent this year before today.
Seeking Bargains
``Customers are looking for bargains, in many cases `trading down' to buy Walgreen's own brands,'' Chief Executive Officer Jeffrey Rein said on a call with investors and analysts. ``People are absolutely shopping for a value.''
Revenue from its 6,727 locations advanced to $15 billion, helped by an 8.9 increase in prescription purchases. The chain is gaining market share in generic drug sales, Rein, 56, said.
Total same-store sales rose 3.4 percent, while prescription purchases at existing stores increased 2.7 percent.
``There's been a lot of concern'' about expenses, Dan Poole, senior vice president of equity research at National City Bank, said in a June 19 interview. His firm manages $34 billion in assets including Walgreen shares.
Profit margin, or the share of sales left after subtracting the cost of goods sold, fell to 28.2 percent from 28.3 percent. The expense of goods sold increased 9.7 percent in the quarter.
Monitoring Expenses
``We've taken a more proactive approach'' to controlling salary growth in stores, monitoring sales and expenses on a weekly basis, Rein said on the call.
Sixteen analysts surveyed by Bloomberg predicted average profit of 59 cents, excluding some costs. The sales projection was $15.1 billion. A year earlier, Walgreen earned $561.2 million, or 56 cents a share.
Like competitors, Walgreen has been expanding the number of walk-in health centers it runs. Earlier this year, it announced acquisitions of I-trax Inc. and closely held Whole Health Management for more than $260 million to triple its clinics.
CVS Caremark Corp., the second-biggest U.S. drugstore chain by sales, bought Caremark RX Inc. last year to add the second- largest U.S. pharmacy-benefits manager.
To contact the reporter on this story: Lauren Coleman-Lochner in New York at llochner@bloomberg.net.
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