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Thursday I watched in morbid fascination as my shares of Walgreen Co (WAG) plunged from $36.00 at the open to close at $34.62 on the close, down $2.16 or 5.87% on the day. It was enough to make me feel like traveling down to my local drug store and loading up on a shipment of antacids.

Walgreen is one of the eight positions in my Trading Account, having purchased 77 shares on 3/27/09, almost a year ago at a cost basis of $26.73/share. I actually sold 1/7th of my holding, 11 shares, on 9/23/09 after the stock hit approximately $33.75 representing a 30% appreciation on my original shares. Without a disgressionary sale, my own trading system would give me a sale signal should WAG return to my original cost or $26.73 a share, a level considerably lower from its closing price. Thursday I chose to ride through this sell-off although I certainly came close to pulling the plug on this stock during the day.

Let's take a closer look at what drove the stock price lower. As the market opened Walgreen announced that January sales came in at $5.36 billion, a 2.7% increase over the $5.22 billion for the same month in 2009. However, sales in comparable stores open for the full year, so called "same-store sales", a more reliable retail figure, decreased 1.1%. The company pointed out that the calendar itself had a negative effect on this figure as this January had one less Thursday and one more Sunday compared to January, 2009.

Overall pharmacy sales increased 1.6% but the same-store pharmacy numbers decreased 1.2%. Similarly, so-called front-end sales (non-pharmacy), while overall showing an increase of 3.9% showed a decrease of 1.0% when same-store figures were considered. Other factors attributed to this decline included a large number of generic sales as well as simply less illness in terms of decreased flu cases in 2010 compared to January, 2009.

As is often the case, while the drop in same-store sales wasn't really precipitous and could be explained through different observations, the fact remained that analysts had been expecting instead of a decline of 1.1%, an increase of 3.2% according to Thomson Reuters. Certainly this 'disappointment' in sales results accounted for the plunge as the street was caught proverbially 'off-guard' and investors dumped shares of Walgreen in a day in which the market itself was performing in an anemic fashion with the Dow dipping 26.30 Thursday to 10,270.55, and S&P dipping 6.04 or .55% to 1,097.28.

On January 28, 2009, Rite Aid (NYSE:RAD), a competitor to WAG reported a decrease in same store sales of 2.1%. Not only did Rite Aid attribute a drop in sales to increasing generics, unlike WAG, RAD reported a dip of 1.1% in total prescriptions. Walgreen actually reported an increase of 2.7% in the number of prescriptions filled. CVS, another competitor does not report monthly sales figures.

Probably of equal impact to the January, 2009 sales numbers was the fact that December figures also disappointed when they reported a 0.3% drop in same store sales. Also that month, the 'street' had been expecting a 2.3% increase in sales. Thus even Walgreen is subject to the continuing contraction in consumer spending after a United States record decline in 2009 of 6.2% in retail sales according to government records that track back to 1992. If you subscribe to the cockroach theory of financial news, two months does not truly make a trend, but a holder of shares might well be concerned that the next several months will continue to be challenges for Walgreen to get back onto its usual record of steady growth, although I am sure that expectations even now are being reduced by analysts.

And I had hoped that WAG would continue to resist this decline.

Walgreen continues to work to restructure its marketing with new inclusions of fresh food, bringing back beer & wine to its stores after deleting this items more than ten years ago, and a generally more conservative expansion plan with few future store openings to save $500 million in 2011 in capital expenditures.

Last month, the company declared that the company should emerge from the downturn in 'an even stronger position'. I shall be patient as my small sale at my 30% appreciation level allows me to tolerate more price volatility within my own investment approach. Hopefully, Gary Kaminsky from "Fast Money" will be on the money and this pullback will be a buying opportunity. As he stated Thursday evening: "I think it's a stock you want to own long term." As an owner of shares, I hope that Gary is right.

Disclosure: long WAG

Source: Walgreen: What Drove It Lower