Drugstore operator Walgreen Co. said Thursday that its sales grew in October, but the results were weaker than expected and the company acknowledged a dispute with pharmacy benefits manager Express Scripts Inc. is hurting its results.
The company said sales at locations open at least a year increased 2.6 percent for the month. Sales at stores open at least one year is considered a key measurement of retailer health because it excludes results from stores that opened or closed over the last 12 months. Thomson Reuters says analysts were expecting those sales to rise 4.9 percent.
Walgreen said pharmacy revenue from stores open at least a year rose 3.1 percent and revenue from "front-end" sales of items like cosmetics increased 1.7 percent. Both fell short of analyst estimates. Prescriptions filled at those stores increased 2.5 percent. The company said it believes its impending split with Express Scripts reduced prescriptions by 0.6 percent.
Express Scripts, one of the largest pharmacy benefits managers in the U.S., pays Walgreen and other drugstores to fill prescriptions. A three-year contract between the companies expires at the end of 2011, and they have been unable to come to terms on a new deal. Express Scripts recently said the companies are not negotiating and Walgreen said Thursday that it is assuming it will not be part of most of Express Scripts' pharmacy networks in 2012.
The Deerfield, Ill., company said it expects to keep between 97 and 99 percent of its 2011 prescription volume without Express Scripts. In July Express Scripts announced plans to buy Medco Health Solutions Inc., one of its biggest competitors. Regulators are reviewing that deal.
In a note to clients earlier this week, Barclays Capital analyst Meredith Adler said she expected the Express Scripts dispute was already hurting Walgreen's results because employers and health plans are informing consumers that Walgreen won't be part of their networks starting Jan. 1, so they are changing pharmacies.
"We expect this pressure to continue for the next six months or so if the dispute is not resolved," she said, "And even if it is, Walgreen will certainly have created confusion for customers and may well have caused lasting damage to those relationships."
Alder rates shares of Walgreen "Underweight" with a price target of $29 per share.
Walgreen said the milder flu season reduced prescriptions at stores open at least one year by 0.5 percent. The company has given 4.1 million flu shots since August, down from 4.5 percent over the same period in 2010. It said customer traffic fell 0.9 percent at those stores, but shoppers spent 2.6 percent more per trip.
Walgreen's total sales for the month rose 4.7 percent to $6.13 billion. Pharmacy revenue increased 4.6 percent and sales of other items grew 3.3 percent.
The company opened 17 stores in October, including five that were relocated. It acquired one store and closed six. Walgreen had 7,786 drugstores at the end of the month, 179 more than a year ago. Its next-biggest competitor, CVS Caremark Corp., has about 7,300 stores.
Shares of Walgreen fell 30 cents to $32.69 in morning trading.