Walgreens Blames Weak Earnings On Generic Drugs & Express Scripts

Walgreens Blames Weak Earnings On Generic Drugs & Express Scripts

Walgreen Company (NYSE:WAG) sales performance in August was, at best, weak, after the company posted a 4.5 percent sales decline to $5.85 billion from its $6.12 billion sales during the same period in 2011.

Walgreen Company (NYSE:WAG) said its total sales for August in comparable stores dropped by 8.2 percent, due the introduction of generic drugs over the past twelve months. The company also cited that it stopped filling up prescriptions for the patients of Express Scripts Holding Company (NASDAQ:ESRX), which represents 10.7 percent of Walgreens prescriptions in August.

The company said its total front-end sales rose by 0.9 percent, while its prescriptions filled in August, dropped by 6.8 percent.

Walgreens pharmacy sales declined by 7.2 percent, while its comparable stores pharmacy sales dropped by 12.4 percent. Walgreens pharmacy sales represent 64.1 percent of the company’s total sales in August.

The company also reported that its total sales performance during the fourth quarter of the fiscal year ending in August was disappointing. The result was 4.9 percent lower from its $17.97 billion total sales in 2011, to the current $17.08 billion.

During the fourth quarter of 2012, its total sales for its comparable stores suffered an 8.7 percent decline, front-end comparable store sales dropped by 1.3 percent, prescriptions filled at comparable stores decreased by 8 percent, and its comparable pharmacy sales went down by 12.6 percent.

Walgreens’ total sales for the fiscal year 2012 was 0.8 percent lower from its $72.18 billion in 2011, to the current $71.64 billion, while its total sales in comparable stores dropped by 3.6 percent.

Wall Street Journal reported that the Defense Department announced that its 1o million beneficiaries, under the Tricare Health Plan, with drug coverage through Express Scripts, will no longer return to Walgreens to fill-up their prescriptions.

In 2011, Walgreen Company (NYSE:WAG) filled 15 million prescriptions from Tricare Health Plan beneficiaries, which accounts for 17 percent of the 88 million prescriptions filled by Express Scripts members through the company’s pharmacies.

According to Reuters, the dispute between Walgreen Company (NYSE:WAG) and Express Scripts had been resolved in July, and the companies agreed to resume their business relationship in September. However, it is unclear how many Scripts Express clients will return and have their prescriptions filled-up by Walgreen Company (NYSE:WAG).

Analysts believe that the Tricare decision is a clear indication that many clients are interested in narrower pharmacy networks, such as CVS Caremark Corporation (NYSE:CVS), in an attempt to save money.

Briant Tanquilut, analyst from Jefferies research firm, said Tricare’s decision boosts Express Scripts objective for narrower networks. He said Express Scripts Holding Company (NASDAQ:ESRX) helps its clients reduce their pharmacy costs by restricting access to more expensive retail pharmacies, while the company makes better margins.

On the other hand, Lisa Gill, analyst from J.P. Morgan, said, “We believe the Tricare decision is an incremental positive for CVS, as it should help lead to higher long-term prescription-retention rates.”

Walgreens stock value is down by 1.90 percent to $35.20 per share after hours of trading on Thursday.

About the Author

Marie Cabural
Marie received her Bachelors Degree in Mass Communication from New Era University. She is a former news writer and program producer for Nation Broadcasting Corporation (NBC-DZAR 1026), a nationwide AM radio station. She was also involved in events management. Marie was also a former Young Ambassador of Goodwill during the 26th Ship for Southeast Asian Youth Program (SSEAYP). She loves to read, travel and take photographs. She considers gardening a therapy.