Pharmacy chain Walgreen Company (NYSE:WAG) missed analysts’ estimates, amid weak economy, lagging front-end sales and lower customer traffic.

Walgreen Company

Walgreen Company (NYSE:WAG) posted $624 million of earnings, or 65 cents per share, in the fiscal third quarter ended May 31, from $537 million, or 62 cents per share, a year earlier.

The drugstore chain said sales in the quarter ended May 31 rose 3.2 percent to $18.3 billion, on the back of an 8.7 percent increase in prescription volume. The quarterly sales fell short of the analysts’ average estimate of $18.43 billion.

However, Walgreen Company (NYSE:WAG) also missed expectations on third quarter sales as customer traffic in stores open at least a year declined by 3.9 percent. The same-store sales grew by 0.4 percent.

The biggest U.S. drugstore chain said its third-quarter adjusted earnings rose 29.3 percent to $812 million, or 85 cents a share, thereby missing analysts’ expectations by 6 cents.

Walgreen Paid $80 Million in Civil Penalties

Earlier this month, Deerfield, Ill.-based Walgreen Company (NYSE:WAG) agreed to pay $80 million in civil penalties to resolve allegations it violated federal rules governing the distribution of prescription painkillers. It set aside $25 million in the third quarter for the penalties, with earnings reduced by 4 cents to 6 cents per share.

During March, AmerisourceBergen Corp. (NYSE:ABC), a drug distributor, have entered into an agreement with Walgreen Company (NYSE:WAG), the largest U.S. drugstore chain and Alliance Boots which would deliver $28 billion in incremental revenue in fiscal 2014 and give rights to Walgreen and Boots to acquire up to 23 percent in AmerisourceBergen.

Walgreen Company (NYSE:WAG) took charges in the quarter related to its acquisition of AmerisourceBergen, a settlement with the Drug Enforcement Division and taxes related to its Alliance Boots business.

According to Credit Suisse analyst Edward J. Kelly, Walgreen Company (NYSE:WAG) and other drugstores have been helped for several quarters by an influx of generic drugs, which boost profitability because they come with a wider margin between the cost for the pharmacy to purchase the drugs and the reimbursement it receives.

Enhanced Customer Traffic and Front-end Sales are Priorities

CEO Greg Wasson said in a statement, “Our front-end sales are still not up to our expectations, and while the economy remains challenging, increasing customer traffic and front-end sales are our near-term priorities with a focus on pricing and promotion and the leveraging of our Balance Rewards program, which now has 75 million members”

The CEO also indicated results suffered particularly at stores in low-income neighborhoods. The drug chain major is revamping product assortments and tweaking its pricing and promotional strategies to stem the declining performance.