CHICAGO (Reuters) - Drugstores reported unusually weak December sales on Thursday, citing a slow flu season, lower-priced generic drugs and sluggish demand for seasonal items.
By Brad Dorfman
CHICAGO (Reuters) - Drugstores reported unusually weak December sales on Thursday, citing a slow flu season, lower-priced generic drugs and sluggish demand for seasonal items.
The results pushed down shares of the two largest drugstore operators, Walgreen Co <WAG.N> and CVS Caremark <CVS.N>.
Walgreen's 2.6 percent increase in December sales at stores open at least a year was the smallest rise since at least 1990, a spokeswoman said.
!ADVERTISEMENT!Same-store sales rose 3.3 percent in the pharmacy section and 1.7 percent for general merchandise, or the "front end."
Walgreen filled 1.4 percent more prescriptions than a year earlier as the milder flu season cut growth by 2.6 percentage points.
William Blair & Co analyst Mark Miller said industry sales were also suffering because of new generic drug introductions. While more profitable for drugstores, these medicines cut into sales figures.
Drugstores are also being hurt by the removal of some children's cold and cough medicines and warnings about others because of concerns that the products can be misused and lead to overdosing, especially in children younger than age 2.
CVS posted a 1.8 percent increase in same-store sales for the five weeks ended December 29. They rose only 2.4 percent in the pharmacy section, with recent generic introductions knocking 4.7 percentage points from the increase.
Front-end same-store sales rose 0.6 percent.
"Sales in December were lighter than anticipated due to adverse weather conditions early in the month, a slowly developing flu season, and general economic conditions," Chief Executive Tom Ryan said in a news release.
But CVS also estimated 2007 earnings at $1.91 to $1.92 a share, at the high end of its previous range of $1.89 to $1.92.
For the fourth quarter, CVS said it expected to report profit of 54 cents to 55 cents a share. Analysts on average had forecast 55 cents, according to Reuters Estimates.
Meanwhile, smaller rival Rite Aid Corp <RAD.N> posted a 0.5 percent same-store sales decline in December on Thursday. Prescription same-store sales were flat, and front-end same-store sales fell 1.2 percent.
The economy, weak flu season and other issues have pressured an industry that had been able to weather Wal-Mart Stores Inc's <WMT.N> highly publicized move in 2006 to begin selling certain drugs for $4 per monthly prescription.
The sluggish economy could help Walgreen's sales growth in relation to its competitors, because the company has some of the best store locations, said BB&T Capital Markets analyst Andrew Wolf.
"What you saw this month was Walgreen's comps did outperform the rest of the industry," he said, "and I think you will see more of that."
Walgreen shares were down $2.04, or 5.4 percent, at $35.30 in afternoon New York Stock Exchange trade. CVS fell $2.81, or 7.2 percent, to $36.54, while Rite Aid dropped 39 cents, or 14.5 percent, to $2.30.
Before Thursday, Walgreen traded at about 16.9 times estimated 2008 earnings, compared with a multiple of 20.5 for CVS Caremark.
Rite Aid is forecast to have a loss for the year, so its price-to-earnings multiple is not applicable.
(Editing by Lisa Von Ahn and Dave Zimmerman)
