* Same-store sales down 1.1 pct vs Wall St up 2.2 pct view
* Pharmacy same-store sales fall 1.2 pct
* Front-end same-store sales fall 1 pct
* Walgreen shares down 5.4 pct; CVS down 2.3 pct (Recasts first paragraph with stock drop; adds analyst comment, CVS and Rite Aid share activity, byline)
By Brad Dorfman
CHICAGO, Feb 3 Walgreen Co WAG.N posted a surprising drop in January sales at its stores open at least a year, disappointing Wall Street expectations for an increase and sending its shares down more than 5 percent.
A calendar shift that left the 2010 month with one less weekday and sales of lower-priced generic drugs pushed the No. 1 U.S. drugstore chain to its second unexpected monthly same-store sales drop in as many months.
Same-store sales fell 1.1 percent in January, while analysts had been looking for a 2.2 percent increase, according to Thomson Reuters data.
Same-store sales at the company's pharmacy counters fell 1.2 percent, Walgreen said. Analysts had been looking for a 3.2 percent increase, according to Thomson Reuters data.
The calendar shift cut 1.3 percent from total same-store sales and 1.9 percent from pharmacy same-store sales, the company said. Walgreen fills more prescriptions on weekdays than on weekends.
But even without the calendar shift, Walgreen's pharmacy sales increased only 0.7 percent, the lowest increase since the company started reporting such data 15 years ago, said William Blair analyst Mark Miller.
"Undoubtedly, there is some correlation with high unemployment, and we believe pharmacy trends likely will remain soft for some time as more people lose unemployment benefits during 2010," Miller said in a note to clients.
Walgreen said pharmacy sales were also cut by 2.3 percentage points due to new generic drugs introduced in the past 12 months and because of fewer cases of flu compared with a year earlier. Generic drugs are lower-priced than standard drugs, so their sales cut into a drugstore's sales, though they help margins.
Walgreen shares fell $2, or 5.4 percent, to $34.78 in early afternoon trading on the New York Stock Exchange.
The results also pressured shares of rivals CVS Caremark Corp (CVS.N), which was down 2.3 percent, and Rite Aid Corp (RAD.N), which slipped 0.7 percent.
Some analysts said the market reaction to the sales report might be overdone.
They said Walgreen has been cutting back on the number of seasonal items it carries and shifting to more profitable products like private-label versions of paper goods, over-the-counter medications and snacks.
"The company is strategically improving its merchandise mix and over time, this is going to lead to more earnings for shareholders," Barrington Research analyst Derek Leckow said. Leckow rates the stock "outperform."
Walgreen filled 2.7 percent more prescriptions in January than a year earlier, with 1.7 percentage points of the increase coming from H1N1 flu shots.
Sales of general merchandise, sold at the front end of the company's stores, fell 1 percent on a same-store basis. Analysts expected a 0.1 percent slip.
Walgreen also posted a surprising 0.3 percent drop in same-store sales in December. [ID:nN06107878] (Reporting by Brad Dorfman; Additional reporting by Jessica Wohl, editing by Dave Zimmerman and Tim Dobbyn)