Prescription business at Walgreen Co. took another sizable hit in February and weighed down overall same-store sales results as the chain continued to feel the impact of its contract impasse with pharmacy benefit manager Express Scripts Inc.


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Rx pulls down Walgreens' February same-store sales

March 5th, 2012

DEERFIELD, Ill. – Prescription business at Walgreen Co. took another sizable hit in February and weighed down overall same-store sales results as the chain continued to feel the impact of its contract impasse with pharmacy benefit manager Express Scripts Inc.

Walgreens said Monday that comparable-store sales fell 4.6% in February, excluding the extra day from leap year. The decrease matched the 4.6% drop in January and continued a declining same-store sales trend over the past several months.

Pharmacy comp-store sales sank 8.6% in February, reflecting negative impacts of 2.2 percentage points from generic drug introductions; 2.4 percentage points from lower incidence of cough, cold and flu; and 10.6 percentage points from no longer being part of the Express Scripts pharmacy network, according to Walgreens.

Prescriptions filled at comparable stores were down 9.5% in February. Walgreens said those results include negative impacts of 1.2 percentage points from lower incidence of flu and 10.7 percentage points from the drug chain being out of the Express Scripts network. Prescriptions processed by Express Scripts accounted for 12.6% of Walgreens' prescriptions in February 2011, the retailer noted.

"The 10.7% decline [in prescription count] suggests that the company retained roughly 15% of the [Express Scripts] business in February, in line with our 15% estimate, but below the company’s ultimate goal of 25% retention," analyst Mark Miller of William Blair & Co. wrote Monday in a research note on Walgreens' February sales. "While we still believe there will be some midyear conversions, we nevertheless continue to project a retention rate of 15%."

Walgreens reported that flu shots administered at pharmacies and clinics season-to-date totaled 5.5 million, down frm 6.3 million a year ago.

In the front end, same-store sales rose 2% in February. Walgreens said basket size increased 2.2%, although customer traffic in comparable stores dipped 0.2%.

"Despite the soft flu season, front-end comps increased 2%, in line with the 2.3% consensus (although some analysts may have included the leap day)," Miller stated in his report. "In particular, management noted that the company had a strong Valentine's Day and that the company has been slightly less aggressive on promotions. As was the case last month, this performance validates the view that the front end is not significantly affected by the Express Scripts contract impasse."

Walgreens' overall revenue in February (including the extra day from leap year) edged up 1.5% to $5.86 billion from $5.77 billion a year earlier. Sales for the month declined 1.4% in the pharmacy but climbed 6.9% in the front end.

Total sales for Walgreens' fiscal 2012 second quarter came in at $18.63 billion, up 0.7% from a year earlier. Fiscal 2012 sales for the first six months totaled $36.79 billion, up 2.6%. Calendar year-to-date sales were down 0.6% to $11.64 billion.

Walgreens said it opened 10 drug stores in February, including one relocation, and acquired one store. As of Feb. 29, the chain operated 7,840 drug stores, 151 more than a year ago, including 19 stores acquired over the past 12 months.

*Editor's Note: Article updated with analyst comment.

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