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Flu season a shot in the arm for Walgreen

Shoppers walk by at the Walgreen’s Times Square store in New York. The Centers For Disease Control is projecting the worst flu season in 10 years, and Walgreen has seen strong demand for flu shots and other immunizations.

Andrew Kelly/Reuters

Walgreen Co. posted an unexpected decline in quarterly profit on Friday as the largest U.S. drugstore chain worked on winning back former customers and changed how it accounts for its first international acquisition.

The company stands to get a bit of a sales lift in the current quarter as a strong flu season brings shoppers in for flu shots and medications.

Walgreen lost millions of customers due to a contract dispute with pharmacy benefits manager Express Scripts Holding Co. and is trying to lure them back with offers such as $25 (U.S.) gift cards. It is seeing an increasing pace of Express Scripts patients returning to its stores.

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Earnings in the latest quarter were hurt by a decision to report results from Walgreen's stake in Europe's Alliance Boots Holding Ltd. on a one-quarter lag rather than a one-month lag. The decision was based on regulatory, audit and business concerns, the company said.

Shares of Walgreen, which has 8,000 U.S. drugstores, fell 3.75 per cent to $36.14 in midday trading.

"It was messy," Gabelli & Co. research analyst Jeff Jonas said of the quarterly results, noting they included items such as the change in reporting results from Alliance Boots as well as a charge for costs stemming from Hurricane Sandy.

"If you give them credit for everything, it was actually a good quarter," he said.

The Centers For Disease Control is projecting the worst flu season in 10 years, and Walgreen has seen strong demand for flu shots and other immunizations continue into December, chief executive Greg Wasson said.

Through the end of its fiscal first quarter on Nov. 30, Walgreen had given more than five million flu shots, up from a year earlier. It has also seen sales of cough and cold medications pick up.

A strong flu season should help the industry in December and likely for the next couple of months, said Jonas.

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Walgreen earned $413-million, or 43 cents per share, in the first quarter, down from $554-million, or 63 cents per share, a year earlier.

Earnings before unusual items fell to 58 cents per share from 71 cents a year earlier, missing analysts' average forecast of 70 cents, according to Thomson Reuters I/B/E/S.

Unusual items in the latest quarter included costs related to acquisitions, an inventory provision, and the effects of Hurricane Sandy.

Results from Alliance Boots cut adjusted earnings per share by 7 cents, rather than adding 3 cents as was expected if results had been reported using a one-month lag.

Walgreen paid $7-billion in cash and stock for a 45-per-cent stake in the European pharmacy operator in August and has an option to buy the rest of the company in about three years.

Walgreen's first-quarter sales fell 4.6 per cent to $17.32-billion, with sales at stores open at least a year, or same-store sales, down 8 per cent.

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The sales performance was slightly worse than Walgreen reported earlier this month. At that time, it said sales fell 4.5 per cent to $17.34-billion and same-store sales declined 7.7 per cent.

Since settling its dispute with Express Scripts, Walgreen has stepped up its marketing to bring back Express Scripts patients and also has been promoting a new loyalty card, signing up more than 45 million shoppers in a few months.

Rivals CVS Caremark Corp. and Rite Aid Corp. are trying to hold onto the customers they gained when Walgreen lost its Express Scripts patients.

On Dec. 13, CVS said it still expected to retain at least 60 per cent of the Walgreen patrons that switched to its chain, which should boost CVS' fourth-quarter earnings by at least 12.5 cents per share.

On Thursday, Rite Aid said it has retained "the lion's share" of patients it gained during the dispute.

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