DEERFIELD, IL–Driven by strong pharmacy sales, Walgreens Co. saw its earnings jump by 20% in the third quarter of fiscal 2005, rising to $411 million, or 40 cents per diluted share, from $342.3 million, or 32 cents per diluted share, during the same quarter one year earlier.

“We had another terrific quarter,” said chairman and CEO David Bernauer, noting that improved gross margins and, higher than expected sales for prescription and non-pharmacy items helped fuel the strong numbers. Investment in the chain’s digital photo labs also improved the overall profitability of the company’s photo finishing business, he said.

Sales were at a record $1.8 billion for the third quarter ending May 31, reflecting a 13.1% increase during the period. Comparable store sales showed an 8.7% increase in the quarter, while front-end comparable store sales rose 6.1% during the same period.

Sales and earnings also were strong during the first nine months of 2005, with sales increasing 2.8% to $317 billion during that period. Net earnings for the nine months climbed 20.0% to $1.231 billion or $1.20 per diluted share (compared to last year’s $1.025 billion or 99 cents per diluted share.)

Driving the increases were strong sales of prescriptions, which accounted for 65% of Walgreen’s business. Prescription sales for the third quarter increased 14% with the total number of prescriptions filled in comparable stores, showing a strong 8.8% increase. The company also expanded its pharmacy market share during the period in every state in which it operates and captured about two-thirds of all retail prescription growth in Texas and Florida, the states with the biggest growth in retail prescriptions.

The company said it also saw an increase in its gross profit margins which increased 94 basis points compared to a year ago. Growth in generic drug sales, increases in digital photo finishing and better purchasing terms contributed to the increase, the company said.

Walgreens, which opened 223 new stores during the first nine months of 2005, operates 4,805 drugstores in 45 states and Puerto Rico, The company said it plans 365 new stores in fiscal 2005. In fiscal 2006, the company anticipates a net increase of 390 new stores after closings and relocations, with an overall expansion of 475 new stores.

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