* Earnings before special items fall to 63 cents a share
from 66 cents year ago
* Sales fall 5 percent to $17.07 billion
* Prescription same-store sales down 12.8 percent
* Shares dip after hitting year high
By Jessica Wohl
Sept 28 Walgreen Co posted a lower
quarterly profit on Friday as customers went elsewhere while the
largest U.S. drugstore chain did not fill prescriptions for
those on Express Scripts Holding Co pharmacy benefit
Walgreen said the year was challenging, due largely to its
now-resolved contract dispute with Express Scripts as well as
stressed consumers cutting back on everyday purchases.
Walgreen gave some indications that its new loyalty card had
attracted a strong following and that some customers on Express
Scripts plans were returning. As usual, though, it did not give
detailed forecasts for the near future.
The company has undergone major changes that have made it
more difficult for analysts and investors to predict its
This month, Walgreen resumed filling Express Scripts
prescriptions after making preparations in June 2011 to walk
away from its contract with the pharmacy benefits provider. This
past June, the company announced plans to buy a major stake in
European drugstore and beauty products company Alliance Boots
. It also introduced the customer loyalty card this
"So many things that have happened in the last year," said
Barclays analyst Meredith Adler, who has a "neutral" rating on
the stock. "The (quarterly) numbers themselves were pretty
confusing, and everybody has to decide for themselves what
things are truly one-time."
Walgreen said its profit had fallen to 63 cents per share,
excluding acquisition- and inventory-related charges, in the
fourth quarter ended on Aug. 31 from 66 cents a year earlier.
Based on her calculations, Adler said Walgreen had earned 55
cents per share, excluding a large inventory accounting charge
and adjusting for a low tax rate.
Shares of Walgreen were down 0.5 percent at $36.41 in
morning trading after touching a 52-week high of $36.90. Through
Thursday, the stock had fallen 19 percent since the company said
it had planned to stop filling Express Scripts prescriptions.
Not being part of the Express Scripts pharmacy provider
network cost Walgreen 6 cents per share in the fourth quarter
and 21 cents for the full fiscal year, which the retailer said
matched its expectations.
Walgreen's fourth-quarter earnings fell to $353 million, or
39 cents per share, from $792 million, or 87 cents per share, a
Walgreen and Express Scripts did not agree on a new contract
in 2011. As a result, Walgreen could not fill Express
prescriptions from Jan. 1, 2012, until the companies resolved
their issues and a new contract kicked in on Sept. 15.
Some investors think the battle with Express Scripts will be
worth it in the long haul.
"We felt it was critical that they stood their ground there,
and we think that they got a settlement that was on good enough
terms to make their forward business with Express Scripts
profitable," said Bill Smead, whose Smead Value Fund held 61,477
Walgreen shares at the end of June.
For the first eight and a half months of the year, patients
on Express Scripts plans had to find other places to get their
medicine. Walgreen lost customers and revenue to other chains
such as CVS Caremark Corp and Rite Aid Corp.
Walgreen, which runs 7,930 U.S. drugstores and hundreds of
health clinics, said fourth-quarter sales had fallen 5 percent
to $17.07 billion.
At stores open at least a year, sales fell 8.7 percent, with
traffic in comparable stores down 3.2 percent. Same-store
prescription sales plunged 12.8 percent, and general merchandise
sales declined 1.3 percent.
Now that Walgreen has patched things up with Express
Scripts, the pharmacy is trying to woo those patients back with
$25 gift cards and the loyalty program.
Still, not all of those people will return. For example
Tricare, which provides medical benefits for U.S. military
members and their families, is keeping Walgreen out of its
pharmacy network. That contract represented about 18 percent of
the prescriptions Walgreen used to process for Express Scripts.
Walgreen is also in its early days as a 45 percent owner of
Alliance Boots, a deal that trimmed earnings during the quarter
as it completed its initial investment in August.
The deal, Walgreen's first international push, gives the
U.S. company the option to buy the rest of Alliance Boots in
about three years.