* Same-store sales up 1.9 pct in Aug, 2.1 pct in FY09
* Analysts expected Aug. same-store sales to rise 3.1 pct
* Aug. front-end same-store sales down 1.3 pct
* Shares down 0.5 pct (Recasts, adds analysts' comments, stock activity, byline)
By Jessica Wohl
CHICAGO, Sept 2 (Reuters) - Customers filled more prescriptions at Walgreen Co WAG.N stores in August but shied away from general merchandise, leading to weaker-than-expected August sales that made some question whether the drugstore chain would meet Wall Street's quarterly earnings forecast.
Analysts have applauded Walgreen's efforts, such as sprucing up its stores, cutting back on store openings and planning a loyalty program, but say it will take time for them to pay off.
Sales at stores open at least a year rose just 1.9 percent in August and 2.1 percent in the recently completed fiscal year, Walgreen said on Wednesday.
Analysts, on average, had expected August same-store sales to rise 3.1 percent, according to Thomson Reuters data.
Walgreen, the largest U.S. drugstore chain by revenue, said August same-store sales at its pharmacy counters climbed 3.8 percent, while same-store sales of general merchandise fell 1.3 percent.
U.S. drugstores get about two-thirds of their revenue from prescriptions, but sales of items such as candy and cosmetics can signal whether customers are willing to make more discretionary purchases. Walgreen said demand for general merchandise continues to be weak in the challenging economy.
That weakness supports the view that there is a risk that Walgreen will miss analysts' average fourth-quarter profit forecast of 40 cents per share, said Credit Suisse analyst Edward Kelly.
Kelly expects Walgreen to post a fourth-quarter profit of 38 cents per share when it reports results on Sept. 29.
Goldman Sachs analyst John Heinbockel, meanwhile, lowered his fourth-quarter profit forecast by a penny to 40 cents per share after sales fell short of his expectations.
Walgreen, which earned 45 cents per share in the year-ago fourth quarter, does not issue earnings forecasts and declined to comment on its prospects.
Walgreen shares were down 0.5 percent at $33.88 after falling as low as $33.11 earlier in the session. Shares of Rite Aid Corp (RAD.N), which is expected to post a 0.6 percent decline in August same-store sales on Thursday, were unchanged at $1.52, and CVS Caremark Corp (CVS.N), which does not issue monthly sales, was down 1.3 percent at $36.49.
Kelly kept his "outperform" rating on Walgreen. He said its plans to cut back on store openings and expenses and improve the look and layout of the front end of its stores "should yield large benefits over the next few years."
Earlier on Wednesday, William Blair analyst Mark Miller said Walgreen appears to have "the potential to significantly increase its earnings over the next several years."
Miller, citing recent meetings with management, said the company acknowledged that it would introduce a loyalty card as part of its customer loyalty program plans.
CVS has seen great success with its ExtraCare card program. Walgreen Chief Marketing Officer Kim Feil has said in the past that Walgreen's loyalty plans may or may not include a card. A spokeswoman on Wednesday said Walgreen has not yet confirmed any specific elements of its program.
Walgreen said total sales for fiscal 2009, which ended Aug. 31, rose 7.3 percent to $63.35 billion. Total August sales climbed 6.8 percent to $5.23 billion.
The company's shares fell 7 percent to $33.88 during fiscal 2009. CVS shares climbed 2.5 percent to $37.52, while Rite Aid shares soared 27.3 percent to $1.54.
Walgreen operated 6,996 drugstores as of Aug. 31. (Reporting by Jessica Wohl, editing by Gerald E. McCormick and John Wallace)