Walgreen Co , the biggest U.S. drugstore chain, posted a lower-than-expected quarterly profit as sales of nonprescription items disappointed, sending its shares down nearly 5 percent.
Sales at stores open at least a year rose 0.7 percent overall, but inched up just 0.1 percent for general, or front-end merchandise.
It's the front-end discretionary sales that really bring in the earnings, said Tim Ghriskey, chief investment officer of Solaris Asset Management, which does not own Walgreen shares.
This is a company that hasn't been executing of late ... and that is why we sold it a while ago, Ghriskey added.
Sales of prescriptions, which accounted for 65.4 percent of the total, rose 5.7 percent, and their same-store sales increased 1 percent.
Walgreen ended a high-stakes standoff with CVS Caremark Corp last week over reimbursements for drug prescriptions that analysts said had pressured its margins.
Net income fell to $463 million, or 47 cents a share, in the third quarter ended May 31 from $522 million, or 53 cents a share, a year earlier.
The quarter included charges of 4 cents a share from the elimination of a tax benefit related to Medicare, 2 cents for Walgreen's recent Duane Reade acquisition and 1 cent for restructuring.
Sales rose 6.1 percent to $17.2 billion.
Analysts, on average, expected Walgreen to earn 57 cents a share before one-time items on $17.14 billion in revenue, according to Thomson Reuters I/B/E/S.
We anticipated this would be a challenging quarter for several reasons, including the sluggish economy, prescription reimbursement pressure compounded by a slowdown in the rate of introduction of new generics, and a lower incidence of flu compared with the beginning of the H1N1 pandemic a year ago, Walgreen Chief Executive Officer Greg Wasson said in a statement.
While we saw a number of positive signs in the quarter ... we also realize there is more to be done, Wasson added. He cited record sales and number of prescriptions filled as well as growth in the company's retail pharmacy market share.
Walgreen said it expected to report organic store growth of 4.5 percent to 5 percent for fiscal 2010 and 2.5 percent to 3 percent annually beginning in 2011.
The company said its integration of Duane Reade was on track. It expects to generate $120 million to $130 million in cost savings from the acquisition over the next three years.
Shares of Walgreen fell 4.6 percent to $28.75 in premarket trading.
(Reporting by Ben Klayman in Detroit; Editing by Derek Caney and Lisa Von Ahn)