By Jane Sanders, Benzinga Staff Writer

Walgreen (WAG) earnings declined 7.7% in the second quarter as the company ended its association with Express Scripts (ESRX) during the mildest winter cold and flu season in 29 years.

Earnings for the largest U.S. drugstore chain came in at $683 million, or 79 cents per share, compared to $739 million, or 80 cents per share, a year earlier. Revenue increased 0.8% to $18.7 billion, despite a 1.5% decrease in sales at stores open for at least one year.

Prescription sales, 61% of sales in the quarter, decreased 3.9% in stores open at least one year, as the Deerfield, Ill., company ended its agreement with Express Scripts, at an estimated cost of 7 cents per share.

"The key questions for the quarter are the firm's ability to cut costs to offset ESRX losses, prospects for a deal with ESRX, and prospects for incremental recovery of lost ESRX business," Goldman Sachs (GS) said in a note issued before the earnings were released.

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The mild winter set back earnings by 3 cents per share, as flu shot distributions declined from 6.2 million to 5.5 million in the quarter. Earnings were given a boost by improving margins in convenience, fresh food, household and personal care sales.

"The front end of our stores continued to perform strongly and attract customers for their health and daily living needs," CEO Greg Wasson said in the earnings release. "As we expected, the convenience and customer-focused selection of our front-end health and daily living products and services led to higher comparable store front-end sales in the quarter, despite reduced pharmacy volume."

In July, Walgreens started a $2 billion share repurchase program, set to expire in December 2015, which according to a press release will also increase earnings per share. The company has bought back more than $3.4 billion of shares since October 2009, $374 million of which was in the second quarter.

Competitor Rite Aid (RAD) had an annual loss of more than $500 million in recently reported quarterly data. There was speculation earlier this month that Walgreens may make a bid for the Camp Hill, Penn., company, following the $1.1 billion acquisition of Duane Reade in 2010. The acquisition would give Walgreens 30% of the U.S. drugstore market.

CVS Caremark (CVS) earned about $1.1 billion in the fourth quarter of 2011, according to a February press release from the Woonsocket, Rhode Island, company, as pharmacy services sales rose more than 30%.

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