Walgreen's Same-Store Sales Hit by Express Scripts Exit

Walgreen Co's (NYSE:WAG) comparable sales fell more than expected in February, the second month that the largest U.S. drugstore chain did not fill prescriptions for patients in the Express Scripts Inc (NASDAQ:ESRX) pharmacy benefits network.

Walgreen also said on Monday that sales had risen 0.7 percent to $18.63 billion in the second quarter ended on February 29, topping the analysts' average forecast of $18.52 billion, according to Thomson Reuters I/B/E/S.

The company's 2 percent rise in February front-end, or general merchandise, sales at stores open at least a year was slightly higher than the 1.8 percent increase analysts had anticipated, according to Thomson Reuters data.

But an 8.6 percent drop in February pharmacy same-store sales was steeper than the 7.2 percent decline analysts expected.

Walgreen stopped filling prescriptions for patients in the Express Scripts network on December 31 after the companies failed to agree on a new contract. Chains such as CVS Caremark Corp <CVS.N> and Rite Aid Corp <RAD.N> have been advertising to woo customers who used to fill their prescriptions at Walgreen.

Traffic in Walgreen's existing stores fell 0.2 percent, but shoppers spent 2.2 percent more when they visited, the company said.

"We have been surprised that the loss of (Express Scripts) traffic has not had a bigger impact on front-end sales," said Credit Suisse analyst Edward Kelly, who has a "neutral" rating on Walgreen shares. "The result suggests that these customers continue to shop Walgreens front-end for convenience purchases, at least for now."

Shares of Walgreen, which runs 7,840 U.S. drugstores, were up 1.7 percent at $33.24 in morning trading.

The number of prescriptions filled at Walgreen's comparable stores decreased 9.5 percent during the first 28 days of February after falling 8.6 percent in January.

No longer being part of the Express Scripts pharmacy network slashed 10.7 percentage points from comparable prescriptions filled in February, Walgreen said. In February 2011, 12.6 percent of Walgreen's prescriptions were for Express Scripts.

Same-store sales fell 4.6 percent in the first 28 days of February from the full 28-day month of February 2011. On that basis, analysts expected a decline of 3.9 percent.

Including the additional day in the latest month, same-store sales were down 0.7 percent.

Walgreen is also seeing less business because of a weaker flu season, which reduced comparable-store prescriptions by 1.2 percentage points. The company has administered 5.5 million flu shots so far this season, down from 6.3 million a year earlier.