NEW YORK (MarketWatch) — Drugstore chain Walgreen Co. on Wednesday reported a better-than-expected 19% increase in its fiscal first-quarter profit, sending its shares up more than 5%.

Net income rose to $580 million, or 62 cents a share, from $489 million, or 49 cents, in the year-ago period, when the company had restructuring costs of 3 cents a share. Sales in the quarter ended Nov. 30 rose 6% to $17.3 billion, with comparable-store sales increasing 0.8%.

S&P 500 to hit 1,500 by June

Analysts, on average, estimated Deerfield, Ill.-based Walgreen WAG, +0.89% , which also owns Duane Reade, would earn 54 cents a share on sales of $17.3 billion, according to FactSet Research.

“Our performance was driven by our continued focus on gross profit margins, cost control and the strategic slowing of our new store openings,” said President and Chief Executive Greg Wasson. “As a result of improved merchandising, including promotions and pricing, we saw significant increases in gross profit margins in the front end.”

Nonpharmacy, or so-called front-end, comparable sales rose 0.4%. Prescription sales, about 66% of total, rose 5.3%. Prescription sales in comparable stores climbed 0.9%.

Gross profit margin widened by 0.8 percentage points to 28.5%. Front-end margins benefited from better promotions and pricing, as well as fewer inventory write-downs compared with the year-ago quarter. Pharmacy margins slightly increased with the positive impact of generic drug sales, partially offset by market reimbursements, the company said.

Looking ahead, the company didn’t give specific forecasts.

“Our performance during the fiscal second quarter is typically driven by Christmas sales and the cold/flu season, which are difficult to predict,” Wasson said. “In addition, persistent high unemployment makes this a challenging retail environment during the holiday season. December sales once again will be largely influenced by the final days, which makes this an important week.”

The upside surprise in the numbers “was particularly impressive when taking into account the inventory write-down of 2 cents per share related to flu shots,” wrote Ajay Jain of Hapoalim Securities. “While we feel there was some expectation heading into the print that the flu inventory risk would be more material, we are also encouraged that the inventory impact over the balance of the flu season is expected to be minimal.”

Further, Jain continued, “given that the first quarter of 2010 was also a particularly strong quarter, we think the latest results offer some confirmation that Walgreen’s merchandising and cost reduction initiatives are having the intended impact.”

The stock closed with a gain of $2.02 at $38.5 after popping as high as $40.20 during the session.