News Column

Walgreen 1Q Profit Drops 25 Percent Following Express Scripts Dispute

Dec 21, 2012

Mary Ellen Podmolik

Walgreen Co. reported a 25 percent decline in fiscal first-quarter profit Friday but said it continues to win back customers lost last year during its contract dispute with Express Scripts Holding Co.

The Deerfield-based company, the nation's largest drugstore chain, earned $413 million, or 43 cents a share, during the three months that ended Nov. 30, compared with $554, or 63 cents a share, in the year-ago period.

The results pushed down shares of Walgreen to around $36.20 in late-morning trading, down more than 3.5 percent. Analysts had been expecting the chain to report quarterly profit of 70 cents a share, according to a survey by FactSet.

Sales slipped 4.6 percent during the quarter, to $17.32 billion. Sales in stores open at least a year, a key measure because it does not include the effect of new store openings, fell 8 percent.

Prescriptions filled in stores open at least a year fell 4.8 percent from the comparable year-ago, but the decline was less than the fiscal second and third quarter declines of 9.1 percent and 8 percent, respectively.

Executives attributed that improvement to Walgreens' continued efforts to woo back customers who shifted their prescriptions to other pharmacies early this year after a long battle over reimbursement rates led Walgreens and pharmacy benefits manager Express Scripts to part ways. Analysts had estimated that the dispute amounted to an annual revenue loss of $4 billion for Walgreens.

The two companies renewed their relationship in mid-summer, allowing customers to return to Walgreens in September.

But the dispute send customers in search of other prescription providers. Rivals scooped up new customers and it showed in their quarterly earnings reports.

Thursday, Rite Aid Corp., the nation's third-largest drugstore chain behind Walgreens and CVS Caremark Corp., reported its first quarterly profit since May 2007 and said its prescription sales in stores open at least a year rose 3.6 percent. It specifically cited the Walgreens' dispute with Express Scripts as a reason for the increased business. CVS previously said it also has benefited significantly.

In an early morning conference call, Walgreens president and CEO Greg Wasson downplayed concerns by analysts trying to reconcile how all the companies say they are keeping customers. "We're certainly feeling good with where we are," Wasson said. "They're coming from every player. We feel good with our win-back."

The company said it has signed up more than 45 million customers for its store loyalty program, Balance Rewards, and 2.5 million customers have already redeemed points they've earned from the program.

Walgreens also said it gave more than 5 million flu shots during the quarter and that strong demand continued in December. The Centers for Disease Control has warned that this year's flu season has come earlier than in past years and could be severe.

"When you're in the prescription business, you can capitalize on that," Wasson said.

Walgreens had 750 stores impacted by Hurricane Sandy, but most were reopened with a week, Wasson said. It recorded $30 million in expense related to the hurricane.

Source: (c)2012 the Chicago Tribune. Distributed by MCT Information Services.

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