* Profit before items 58 cents vs Street view 70 cents
* Sales down 4.6 percent to $17.32 bln
* Shares decline 3.75 percent
By Jessica Wohl
Dec 21 Walgreen Co posted an unexpected
decline in quarterly profit on Friday as the largest U.S.
drugstore chain worked on winning back former customers and
changed how it accounts for its first international acquisition.
The company stands to get a bit of a sales lift in the
current quarter as a strong flu season brings shoppers in for
flu shots and medications.
Walgreen lost millions of customers due to a contract
dispute with pharmacy benefits manager Express Scripts Holding
Co and is trying to lure them back with offers such as
$25 gift cards. It is seeing an increasing pace of Express
Scripts patients returning to its stores.
Earnings in the latest quarter were hurt by a decision to
report results from Walgreen's stake in Europe's Alliance Boots
Holding Ltd on a one-quarter lag rather than a
one-month lag. The decision was based on regulatory, audit and
business concerns, the company said.
Shares of Walgreen, which has 8,000 U.S. drugstores, fell
3.75 percent to $36.14 in midday trading.
"It was messy," Gabelli & Co research analyst Jeff Jonas
said of the quarterly results, noting they included items such
as the change in reporting results from Alliance Boots as well
as a charge for costs stemming from Hurricane Sandy.
"If you give them credit for everything, it was actually a
good quarter," he said.
FLU UP, PROFIT DOWN
The Centers For Disease Control is projecting the worst flu
season in 10 years, and Walgreen has seen strong demand for flu
shots and other immunizations continue into December, Chief
Executive Greg Wasson said.
Through the end of its fiscal first quarter on Nov. 30,
Walgreen had given more than 5 million flu shots, up from a year
earlier. It has also seen sales of cough and cold medications
A strong flu season should help the industry in December and
likely for the next couple of months, said Jonas.
Walgreen earned $413 million, or 43 cents per share, in the
first quarter, down from $554 million, or 63 cents per share, a
Earnings before unusual items fell to 58 cents per share
from 71 cents a year earlier, missing analysts' average forecast
of 70 cents, according to Thomson Reuters I/B/E/S.
Unusual items in the latest quarter included costs related
to acquisitions, an inventory provision, and the effects of
Results from Alliance Boots cut adjusted earnings per share
by 7 cents, rather than adding 3 cents as was expected if
results had been reported using a one-month lag.
Walgreen paid $7 billion in cash and stock for a 45 percent
stake in the European pharmacy operator in August and has an
option to buy the rest of the company in about three years.
Walgreen's first-quarter sales fell 4.6 percent to $17.32
billion, with sales at stores open at least a year, or
same-store sales, down 8 percent.
The sales performance was slightly worse than Walgreen
reported earlier this month. At that time, it said sales fell
4.5 percent to $17.34 billion and same-store sales declined 7.7
Since settling its dispute with Express Scripts, Walgreen
has stepped up its marketing to bring back Express Scripts
patients and also has been promoting a new loyalty card, signing
up more than 45 million shoppers in a few months.
Rivals CVS Caremark Corp and Rite Aid Corp
are trying to hold onto the customers they gained when Walgreen
lost its Express Scripts patients.
On Dec. 13, CVS said it still expected to retain at least 60
percent of the Walgreen patrons that switched to its chain,
which should boost CVS' fourth-quarter earnings by at least 12.5
cents per share.
On Thursday, Rite Aid said it has retained "the lion's
share" of patients it gained during the dispute.