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Key Walgreen revenue metric falls 5.9 pct in Oct

Tom Murphy, AP Business Writer

Walgreen Co.'s revenue from established stores fell deeper than Wall Street expected last month, as cheaper generic drugs continued to hurt the drugstore chain's top line, and it temporarily closed hundreds of stores the last week of October when Superstorm Sandy hit the East Coast.

The Deerfield, Ill., company said Monday revenue from stores open at least a year fell 5.9 percent. That included a 7.5 percent decrease in pharmacy revenue, which makes up most of its business, and a 2.9 percent drop from the front end, or rest of the store.

Analysts expected, on average, an overall decrease of 3.7 percent, according to Thomson Reuters. They forecasted pharmacy revenue falling 5.8 percent and front-end revenue climbing slightly.

Revenue from stores open at least a year is considered a key indicator of retailer health because it leaves out results from locations that have opened or closed in the last year.

Walgreen said the introduction of generic drugs hurt pharmacy sales in October, as it has for the past several months. Generic equivalents to popular brand-name drugs like the cholesterol fighter Lipitor hurt revenue for Walgreen and other drugstore chains because they cost less than their brand-name counterparts.

At the same time, generics boost profitability, because they come with a wider margin between the cost for the pharmacy to purchase the drugs and the reimbursement it receives.

Walgreen also said that at the peak of Superstorm Sandy, it had closed more than half of its 1,400 stores located in the area hit by the storm. The company didn't detail the impact those closings had on revenue. But it did say that up until Oct. 25, both pharmacy and front-end revenue from stores open at least a year had fallen by smaller percentages than they did for the full month.

Calendar day shifts helped the drugstore chain's revenue last month. This past October had one additional Tuesday and Wednesday and one fewer Saturday and Sunday than October 2011. Drugstores generally see more sales on work week days, when their customers are more likely to seek medical care and then fill a prescription.

October also was the first full month for Walgreen's new contract with Express Scripts Holding Co., but the drugstore did not say on Monday whether that affected its performance, and a company spokesman declined to comment.

Walgreen's revenue has slumped throughout 2012, partially because it had stopped filling prescriptions for Express Scripts, which runs prescription drug plans for employers, insurers and other clients as the nation's largest pharmacy benefits manager. The companies had let an agreement between them expire at the end of 2011, and their new deal didn't start until Sept. 15. The split sent Walgreen customers to its competitors to get their prescriptions filled.

Overall, Walgreen's revenue fell 2.1 percent in October to $6 billion. Walgreen operated 8,030 drugstores at the end of last month, or 244 more than a year ago.

Company shares fell 31 cents to $34.58 Monday morning, while broader trading indexes also fell slightly.