Walgreen feels pain of falling drug sales
The chain suffers for a fifth straight month after the termination of a contract with a key pharmacy benefits manager.
Walgreen walked out of Express Scripts' network last year over a reimbursement-rate dispute. Walgreen's dispute with Express Scripts and its prescription business exodus has significantly benefited its rivals, particularly CVS Caremark (CVS) and Rite Aid (RAD).
Walgreen and Express Scripts have recently dropped the legal claims filed against each other in September, fueling market expectations that there might be a reconciliation between the estranged companies. However, Walgreen has denied any connection between the withdrawal of legal claims and the possibility of a new contract.
Walgreen's sales continue to suffer
Walgreen's May sales decreased by 1.6% compared to May 2011 on reduced pharmacy sales, which were partly offset by the opening of seven new stores and the acquisition of 28 Bioscrip community pharmacies.
As a result, prescriptions filled at its comparable stores declined by 8.5%, leading to 4% lower pharmacy sales. Comparable-store pharmacy sales also were negatively affected by 4 percentage points because of generic drug introductions. Prescriptions processed by Express Scripts composed 12.7% of Walgreen prescriptions in May 2011 and contributed to a 10.8 percentage point decline in comparable-store prescriptions. Decreased footfall due to Express' exit also moderated front-end sales. Overall, 3Q sales for fiscal 2012 were 3.3% lower compared to the same period last year, with 6.5% lower comparable store sales and 9% fewer prescriptions.
Walgreen's biggest competitors, CVS Caremark and Rite Aid, have significantly benefited from the fallout last quarter gaining millions of new prescriptions as Express members looked for non-Walgreen pharmacies to fill their prescriptions, and ended up at CVS or Rite Aid stores. In particular, CVS has raised its full-year guidance, and is trying to make the new customers permanent, taking advantage of the delays in hammering out a new deal. CVS could tap up to 20 million transferred prescriptions if the impasse continues through 2012.
We value Walgreen with a $35 Trefis price estimate of its stock, 10% ahead of the current market price.
We were severely dissappointed in the loss of Walgreens after their dispute with Express Scrpits. As a retired military vet, we had become very comfortable with our "local pharmacy" after over 20 years of service from them. We had used Walgreens nationwide because wealso were avid RV'ers. It was comforting to know that "our" pharmacist was a click away.
CVS has been very concilliatory..but now we have to get re-familiarized with a new pharmacy system after over 20 years with another.
IS THIS AN OBAMA LOWEST BIDDER RESULT??? I sincerely hope all gos well around the nation as we travel...just like with Walgreens.
We have never had trouble with Walgreens and use them in particular because we can get a prescription filled or refilled where ever we are that a Walgreen's is. Never had to wait 20 minutes on hold. I have found the Wisconsin Walgreens much more customer friendly than the ones we used in Nebraska.
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