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Article posted: 3/5/2013 2:35 PM

Key Walgreen revenue metric slips in February

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Revenue from established stores slipped last month for Walgreen Co., as generic drugs once again chipped away at the drugstore chain's top line. Its shares dropped more than 3 percent in midday trading Tuesday.

The Deerfield, Ill., company said Tuesday that revenue from stores open at least a year fell 0.6 percent in February. Pharmacy revenue came in flat even though prescriptions filled at those stores climbed 6.5 percent. Revenue from the front-end, or rest of the store, fell 1.4 percent.

Revenue from stores open at least a year is considered a key indicator of retailer health because it leaves out results from locations that have opened or closed in the last year.

Analysts expected, on average, an overall decrease of 3.3 percent, according to Thomson Reuters. They forecast a 2.8 percent drop from the pharmacy and a 4.3 percent decrease from the front end. But those estimates compared the 29 days in February 2012 with the 28 days in February 2013.

Walgreen excluded the extra day from last year's leap year in its results.

Its shares dropped 3.5 percent, or $1.48, to $40.30 in midday trading Tuesday, while the Standard & Poor's 500 index climbed about 1 percent.

The drugstore chain's February performance represented a step back from January, said Jeff Jonas, a portfolio manager with the asset management firm GAMCO Investors.

Walgreen saw revenue from stores open at least a year climb 3.7 percent in the first month of 2013.

Walgreen is the nation's largest drugstore chain, with 8,071 stores as of Feb. 28. Drugstores and pharmacy benefits managers, or PBMs, have taken revenue hits for several quarters now due to an increase in generic drug prescriptions.

Generic equivalents for top-selling medicines like the cholesterol fighter Lipitor hurt revenue for these companies because they are cheaper than their brand-name counterparts. But they also help earnings because they come with a wider margin between the price drugstores pay to buy them and the reimbursement they receive for doling them out.

A contract dispute with pharmacy benefits manager Express Scripts Holding Co. hurt Walgreen's revenue last year and also affected the comparison with this year. Walgreen didn't fill prescriptions for Express Scripts, the nation's largest pharmacy benefits manager, for most of last year, and Express Scripts customers migrated to other drugstores. The companies resumed doing business last September.

Walgreen said the percentage of former Express Scripts customers that returned to its pharmacies also continued to grow last month, but it offered no specifics.

Analysts have said they expect that Walgreen will have an easier comparison of monthly sales this year with the same month in 2012, when that split hurt business.

Walgreen's total sales for last month climbed 1.5 percent to $5.75 billion, not counting the extra day in February 2012. The company's fiscal second-quarter sales totaled $18.63 billion, down slightly compared to the previous year's quarter.

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