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's (WAG) sales continued to decline for the fifth consecutive month after the disruptive discontinuation of Walgreen's contract with pharmacy benefits manager Express Scripts (ESRX) this year. Express accounted for more than 12.7% of Walgreen's business in May 2011, and its exit helped to send same-store sales down by 5.8% in May 2012. 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.
They bailed on the Gubment contract...the worse mistake they could have made. They felt like they were not making ENOUGH profit........Greed kills....they did not calculate the VOLUME they would lose......now.....CVS goes from a zero to a hero....Walgreens mark it on your calendar...WILL BE GONE in 5 years.......They will try to hang on this time next year....but they going down faster than my Daddy's CADDY going downhill....as Howling wolf used to sing ..." I'm.Going down slow!"
Let me put it to you like this...if I dont need a prescription filled ....why do I go into Walgreens? I don't and thats what they miss...folks just buying **** after they pick up their prescription. A Terrible Mis-Calculation.
We had to swap to CVS for my fathers meds due to this deal but... CVS is technically WAY behind Walgreens and they screw up the scripts and they demand my wife needs a POA on file to get medical information No.. that's HIPPA not a Power of Attorney...dufus and they keep refilling scripts he hasn't had for over a year (trying to get $'s for nothing) and then they don't fill the scripts we call in and then they are combative and irritatiing to ...um the customer.
I've met people that went back to Walgreens and paid full price just to stop dealing with CVS. While many have moved on I think if Walgreens fixed their rift they'd pull a lot of folks back. CVS wasn't prepared to handled all these folks and their lack of technology is pitiful for 2012.
We're just glad my RX plan is still at Walgreens... and we're transitioning Dad to the VA for his RX's
I am a CVS/Caremark employee. First off Walgreens gets what they sow. What I hate about Walgreens is the refusal to bill any prescription plan if they think they are not getting back enough. I work for The Federal Employee program our members calls us all the time and say Walgreens would not take thier insurance. When I call them they say no they will not bill electronically because they are not being reimbursed enough. All they think of is what they make not thier customers. Really it does not make any diffrence what pharmacy you use if you have rx coverage. Your prescriotion management company has an amount they will pay for each drug no matter where you go to have them filled. Pharmacies join thier network to compete for thier bussiness and agree under that contract to accept that price instead of what they would charge anyone else that did not have rx coverage when walkimg in off the street.
Sorry...should have read ALL the comments below before my comment...because I would have used more "CAPS" to emphasise the fact that I have NEVER had any difficulty with my local Walgreens Pharmacy in Bellevue, NE. They were ALWAYS on top of everything...even re-adjusting one of my wife's meds to our pay because it was better than the generic, which is all that Express Scripts would pay for.
Truly sorry to have lost Walgreens!
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