American Store Shares Drop 24%

Shares of American Stores on Friday fell 24% after it warned that fiscal second-half earnings will decline, mainly because of lower revenue from prescription-drug sales at its drugstores.

The stock fell $6.38 to $20.50 in heavy trading on the New York Stock Exchange.

The operator of Osco and Sav-On drugstores and Acme supermarkets accepted unfavorable contracts to fill prescriptions for the customers of health plans and Medicaid in California amid stiff competition from rival chains. In addition, the company failed to cut costs to offset the decline and incurred expenses from moving personnel to its Salt Lake City headquarters from Chicago.

Company officials weren’t immediately available for comment.

American Stores said it expects third-quarter earnings to fall to between 22 cents and 24 cents a share from 26 cents a year ago. It was expected to earn 30 cents a share for the quarter ended Nov. 1, according to analysts.

In addition, it said fourth-quarter earnings will show a decline similar to that in the third quarter. It was expected to earn 50 cents a share, up from 22 cents a year earlier.

For the year ended in January, earnings are expected to rise 10% to 15%, the company said. It is scheduled to report third-quarter earnings Nov. 25.

The drugstore business suffered primarily from the increased use of third-party prescriptions, which will rise to 82.4% of pharmacy sales from 78.6%, the company said. American Stores operates more than 1,700 stores in 27 states.