* May same-store sales up 1 pct, Street view up 2.2 pct
* Sales growth stronger in pharmacy vs general merchandise
* Filling more prescriptions at comparable stores
* Shares up more than 1 pct (Recasts, adds analysts' comments, stock activity, byline)
By Jessica Wohl
CHICAGO, June 2 Walgreen Co's WAG.N sales growth in May fell short of analysts' expectations on Tuesday, though the drugstore filled more prescriptions at stores open at least a year and its shares rose.
After adjustments, prescription volume appears to be up about 6.5 percent, "which indicates significant share gains," Jefferies analyst Scott Mushkin said in a note to clients.
"This should offset some of the disappointment on the sales miss for investors who have become bullish on the company's prospects," Mushkin said. He rates the shares "hold."
The number of prescriptions filled at comparable stores rose 2.8 percent in May, aided by more patients filling 90-day prescriptions. Those prescriptions, which are popular under many insurance plans, are counted as three prescriptions in the month they are sold.
Walgreen shares climbed 1.54 percent to $31.62.
May same-store sales rose 1 percent, while analysts had expected a 2.2 percent rise, according to an average forecast compiled by Thomson Reuters.
While the sales fell short of expectations, they still rose even as shoppers continue to hold back. Walgreen is one of only eight U.S. retailers that was expected to report higher May same-store sales this week. It is the third-largest retailer that reports monthly sales now that Wal-Mart Stores Inc (WMT.N) has stopped the practice. [ID:nN01135702]
Pharmacy same-store sales rose just 1.5 percent, falling short of analysts' average forecast for a 3.5 percent rise.
Walgreen said the influx of new generic drugs over the past year and having one less weekday in May for consumers to fill prescriptions pressured the results.
Generic drugs cost less than brand-name counterparts and depress sales, but are more profitable for pharmacies.
SIGNS OF IMPROVEMENT
Walgreen has been promoting "affordable essentials" such as soap and toilet paper to attract shoppers in the recession.
Same-store sales of general merchandise rose 0.2 percent, topping analysts' expectations for a 0.2 percent decline.
While the general merchandise sales, known as front-end sales, were "not stellar" they showed a modest improvement after some slight declines in recent months, UBS analyst Neil Currie said in a research note.
It looks like the front-end is "headed in the right direction," said Currie, who rates Walgreen shares "neutral."
Walgreen is cutting jobs and opening fewer stores than usual as part of a bid to save $1 billion per year by fiscal 2011. Meanwhile, rival CVS Caremark Corp (CVS.N) is busy integrating its pharmacy benefits business and a smaller chain into its operations.
Barrington Research analyst Derek Leckow, who rates Walgreen "market perform," said its earnings should start to benefit from lower spending on new stores in fiscal 2010.
The company does not issue earnings forecasts, though it has previously said it hopes to return to double-digit earnings per share growth as it works on its strategy.
Walgreen's total May sales rose 6.1 percent to $5.37 billion. The company said it had 6,857 drugstores as of May 31, 605 more than a year before. (Reporting by Jessica Wohl, editing by Gerald E. McCormick and Gunna Dickson)
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