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Walgreen plans new acquisition, June sales fall

Source : AP
Last Updated: Thu, Jul 05, 2012 20:46 hrs

$438 million purchase of a regional chain that operates USA Drug, Super D and May's drugstores.

The Deerfield, Ill., company also said monthly sales fell once again in June, as a split with pharmacy benefits manager Express Scripts Holding Co. continued to hurt business.

Walgreen plans to buy 144 stores in a chain focused on the mid-South from the privately held Stephen L. LaFrance Holdings Inc., which is based in Little Rock, Ark.

Its stores are located in Arkansas, Kansas, Mississippi and Missouri, among other states.

The deal, expected to close around Sept. 1, is much smaller than the $6.7 billion in cash and stock Walgreen said last month that it will spend for a stake in European health and beauty retailer Alliance Boots, the largest drugstore chain in the United Kingdom. Walgreen also has an option to buy the rest of the company in about three years in a deal valued at around $9.5 billion.

Walgreen said Thursday that its most recent acquisition will help it expand to smaller communities where USA Drug has developed operational expertise.

That deal also may give the nation's largest drugstore operator, some additional leverage in dealing with Express Scripts, the largest pharmacy benefits manager or PBM, said analyst Jeff Jonas, who covers Walgreen for Gabelli & Co. He noted that if Walgreen establishes a dominant position in a particular market, Express Scripts may feel more pressure to include Walgreen in its network.

PBMs run prescription drug plans for employers, government agencies and other clients. Walgreen stopped filling prescriptions for Express Scripts at the end of last year, after the two companies failed to agree on a new contract.

The drugstore chain's sales have fallen for the past several months, as it predicted they would, and Walgreen could be in for another revenue hit.

St. Louis-based Express Scripts closed its acquisition of another PBM, Medco Health Solutions, in April. Analysts say the Medco business also may drop Walgreen. Both Express Scripts and Walgreen representatives have declined to comment on that agreement.

In June, Walgreen's revenue from stores open at least a year sank 10 percent. That was a deeper slide than the 8.2 percent drop expected by analysts, according to Thomson Reuters.

Revenue from stores open at least a year is considered a key indicator of retailer health because it isn't skewed by stores that recently opened or closed.

Pharmacy revenue from stores open at least a year tumbled 15 percent due in part to the introduction of some generic drugs, which are cheaper than brand-name alternatives and tend to depress pharmacy revenue but improve profitability.

Calendar shifts also affected the drugstore chain's performance. Last month had two fewer weekdays than June 2011. Jonas said pharmacies tend to get more prescription business on weekdays, because that's when people usually see doctors.

The Express Scripts split also hurt. Walgreen said prescriptions filled for Express Scripts comprised 12.6 percent of its total in June 2011.

Walgreen has reported revenue declines for the past several months, and Jonas expects this to continue for the rest of the year due to comparisons with 2011 figures that include Express Scripts business.

Walgreen runs 7,907 drugstores in all 50 states, the District of Columbia and Puerto Rico. The company's stock price slipped below $30 after it announced the Alliance Boots deal last month and hit a 52-week low of $28.53 before rebounding a bit.

Its shares rose 26 cents to close at $29.87 Thursday.




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