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Generic Troubles Wallop Walgreen

The drugstore chain posts an unexpected earnings decline, sending shares plunging.



shares tumbled 11% early Monday after the drugstore chain posted a fourth-quarter profit that missed estimates, as results were hurt by lower reimbursements on generic drugs.

For the quarter ended Aug. 31, Walgreen earned $396.5 million, or 40 cents a share, down from $412.3 million, or 41 cents a share, a year earlier.

Analysts polled by Thomson Financial expected earnings of 47 cents a share.

Sales rose to $13.42 billion from $12.17 billion a year earlier, missing analysts' average forecast of $13.54 billion.

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Walgreen said it had lower profits from generic drugs such as simvastatin, the generic version of


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Zocor. Pharmacies often see a big jump in sales once drugs first become generic, but they typically don't maintain that pace. Generic Zocor entered the market in June 2006.

"This quarter was negatively impacted by lower generic drug reimbursements, combined with higher salary and store expenses, and higher advertising costs," said Chairman Jeffrey Rein in a press release. "Our expenses weren't in line with the level of reimbursements we were receiving. Managing both expenses and lower reimbursements on some generic drugs is my top priority. We're going to fix this, and at the same time continue our aggressive growth plan."

Walgreen's same-store sales, or sales at stores open at least a year, rose 6.3% in the quarter. Front-end same-store sales climbed 6.1%. Prescription same-store sales rose 6.5%.

Shares of Walgreen were sliding $5.34 to $41.90 in premarket trading.