Walgreen loses key Express customer; August sales drop

Thu Sep 6, 2012 4:19pm EDT

A sign for a Walgreens store is seen in Belle Glade, Florida January 6, 2010. REUTERS/Carlos Barria

A sign for a Walgreens store is seen in Belle Glade, Florida January 6, 2010.

Credit: Reuters/Carlos Barria

(Reuters) - Walgreen Co (WAG.N) on Thursday posted an 8.2 percent decline in sales at existing stores in August, a day after a key healthcare benefits provider said it would not reinstate Walgreen into the pharmacies approved to fill prescriptions.

Tricare, which provides medical benefits for U.S. military members and their families, said on its website that it will continue to keep Walgreen out of its pharmacy network, despite the resolution of a dispute between Walgreen and Express Scripts Holding Co (ESRX.O), the company that processes prescriptions for Tricare.

A disagreement over contract terms led Walgreen to stop filling prescriptions for Express Scripts patients at the beginning of 2012. After resolving their dispute in July, the largest U.S. drugstore chain will resume doing business with Express Scripts on September 15.

But the decision by Tricare raises the question of how many Express Scripts clients will allow Walgreen back into their networks. Providers can receive discounts for using more limited networks.

"This surprising announcement clearly questions how many of the Express Scripts scripts Walgreens used to process will actually return and it also appears to be a tacit endorsement for more limited networks," said Scott Mushkin, an analyst at Jefferies & Co.

Walgreen shares were down nearly 2 percent on Thursday morning.

Walgreen has said Tricare represented about 18 percent of the prescriptions Walgreen used to process for Express Scripts.

Last fall, as it was getting ready to leave the Express Scripts network, Walgreen offered to match or beat other pharmacies' costs in order to stay in Express Scripts' Tricare program.

Without Walgreen, Tricare beneficiaries still have access to more than 57,000 pharmacies. Members can fill prescriptions out of the network at other pharmacies, including Walgreens, but will pay higher out-of-pocket costs, according to Tricare's website.

A Walgreen spokesman could not immediately be reached for comment.

SALES DECLINE

The loss of Express Scripts customers has weighed on Walgreen sales all year, and August was no different.

The 8.2 percent drop in sales at stores open at least a year was steeper than the 8 percent decline expected, on average, by three analysts according to Thomson Reuters I/B/E/S.

Total sales for the month fell 4.5 percent to $5.85 billion.

For the fourth quarter, which ended August 31, sales fell 4.9 percent to $17.08 billion. Analysts on average forecast $17.21 billion, according to Thomson Reuters I/B/E/S.

Walgreen shares were down 1.7 percent at $35.26 in morning trading on the New York Stock Exchange. Shares of CVS Caremark Corp (CVS.N), which has drugstores that compete with Walgreen and a pharmacy benefits business that competes with Express Scripts, were up 2 percent at $46.42. Shares of Rite Aid Corp (RAD.N), the third-largest drugstore chain behind Walgreen and CVS, were up 1.6 percent at $1.24.

On Wednesday, Rite Aid said August same-store sales rose 0.4 percent.

(Reporting by Brad Dorfman and Jessica Wohl in Chicago; editing by Maureen Bavdek and Matthew Lewis)

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