Key Walgreen revenue metric sinks 6.2 pct in Nov

Tom Murphy, AP Business Writer
Associated Press

A key revenue measurement for Walgreen Co. came in lower than Wall Street expected once again last month, as the introduction of generic drugs continued to squeeze revenue for the nation's largest drugstore chain.

The Deerfield, Ill., company said Wednesday revenue from stores open at least a year fell 6.2 percent. That included an 8.8 percent drop in pharmacy revenue and a 1.7 decline from the rest of the store. All three figures reflected steeper drops than analysts predicted.

Analysts expected, on average, an overall decrease of 5.5 percent, according to Thomson Reuters. They expected an 8.1 drop in pharmacy revenue, to be blunted in part by a decline of less than 1 percent from the front end.

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, and measures growth at existing locations.

Walgreen cited generic drug introductions as the main factor behind the revenue drop. The introduction of generic equivalents to popular brand-name drugs like the cholesterol fighter Lipitor has hurt revenue this year for Walgreen and other drugstore chains because they cost less than their brand-name counterparts.

On the flip side, these generics also boost profitability, because they come with a wider margin between the cost for the pharmacy to purchase the drugs and the reimbursement it receives.

Overall, Walgreen said November sales fell nearly 4 percent to $5.85 billion compared with last year, with the pharmacy accounting for 63 percent of that total.

Citi analyst Deborah Weinswig said in a research note she believes Walgreen is still struggling with the impact of its split with Express Scripts Holding Co.

Walgreen revenue has slumped throughout 2012 partially because it had stopped filling prescriptions for Express Scripts, which runs prescription drug plans for employers, insurers and other clients as the nation's largest pharmacy benefits manager. The companies had let an agreement between them expire at the end of 2011, and their new deal didn't start until Sept. 15.

The split sent Walgreen customers to its competitors to get their prescriptions filled. Weinswig said in a Tuesday research note she now expects the drugstore chain to recapture only about 20 percent of that lost business, compared with her previous forecast for 40 percent.

Walgreen did not mention Express Scripts in its statement on November sales. It hasn't mentioned the split for the past few months.

Total revenue for Walgreen's first fiscal quarter, which ended Nov. 30, dropped nearly 5 percent to $17.34 billion.

Analysts expected, on average, revenue of $17.64 billion, according to FactSet.

Walgreen operated 8,057 drugstores at the end of last month, or 246 more than a year ago.

Walgreen shares climbed nearly 2 percent, or 67 cents, to $34.94 in Wednesday morning trading, while the Dow Jones industrial average fell slightly. The stock has traded between $28.53 and $37.34 in the past 52 weeks, and is up more than 5 percent since the start of the year.