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Promotions, fewer new generic drugs hurt Walgreen

A Walgreens logo is seen outside its store in New York City, September 18, 2013. REUTERS/Mike Segar
A Walgreens logo is seen outside its store in New York City, September 18, 2013. REUTERS/Mike Segar

(Reuters) - Walgreen Co , the largest U.S. drugstore operator, reported higher quarterly sales on Friday, but an increase in promotions and a slowdown in the introduction of higher-profit generic drugs cut into its gross profit margin.

Sales and earnings rose in the fiscal first quarter, but gross profit margin fell 1.3 percentage points to 28.1 percent of sales, hurt by fewer new generic drugs and efforts to get more shoppers into stores in what Chief Executive Greg Wasson called "the continued soft economy."

Wasson said he expects profit margin in its pharmacy business will also be hurt in the current quarter, but the pressure will likely ease in the second half of the year. Generic drugs generate less revenue but are more profitable than brand drugs.

Rival drugstore chain Rite Aid Corp on Thursday lowered its full-year profit forecast for that same reason.

Wasson said the business environment was challenging and said Walgreen would focus on containing costs to protect margins. He gave no specifics.

On the positive side, Walgreen's aggressive promotions of general merchandise helped increase the number of customer visits in the latest quarter. And the retailer also said its share of the retail drug prescription market had risen by half a percentage point to 19.4 percent, citing IMS Health data.

Net income rose to $695 million, or 72 cents per share, in the first quarter ended November 30, from $413 million, or 43 cents per share, a year earlier.

Sales increased 5.8 percent to $18.33 billion, slightly below the $18.35 billion that analysts had projected.

(Reporting by Phil Wahba in New York; Editing by Jeffrey Benkoe and John Wallace)

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