Profit growth demonstrates longs is 'gaining traction'.(Longs Drug Stores Corp.'s sales and earnings)

WALNUT CREEK, Calif. -- Although meaningful sales growth remained elusive, Longs Drug Stores nevertheless rang up strong gains in reported and adjusted earnings for the quarter and fiscal year ended January 26, due largely to strengthened gross margins, lower operating expense ratios and sharply reduced interest costs.

Net income for the final 13 weeks of fiscal 2006 soared 99.4% to $35.3 million, or 92 cents per diluted share, from $17.7 million, or 47 cents per share, a year ago. Bottom-line results in the most recent quarter were bolstered by a $6.6 million after-tax net gain on the sale of the company's Lathrop, Calif., distribution facility and a $3.7 million after-tax favorable actuarial adjustment to self-insurance reserves due to a decline in workers' compensation claims and lower costs per claim.

Earnings in the fiscal 2005 period benefited from a $2 million after-tax favorable actuarial adjustment to self-insurance reserves. Excluding those items, adjusted profits for the 13 weeks climbed 59.2% to $25 million from $15.7 million a year ago. Adjusted earnings per share of 64 cents beat the 60-cent consensus estimate of analysts polled by Thomson Financial.

Fourth quarter retail sales rose 2.4% to $1.22 billion from $1.19 billion, while pharmacy benefits service revenues more than tripled to $25.4 million from $8.46 million. With that, total revenues for the 13 weeks advanced 3.8% to $1.24 billion from $1.20 billion.

Same-store sales increased 2%, as a 5.2% gain in pharmacy was diluted by a 0.7% downturn at the front end. Prescription drugs accounted for 47.1% of Longs' retail sales during the period, up from 45.7% a year ago.

In the pharmacy benefits segment --which is now reported as a …