Key Walgreen revenue metric sinks in November
A key revenue measurement for Deerfield-based Walgreen Co. came in lower than Wall Street expected once again last month, as the introduction of generic drugs continued to squeeze revenue for the nation’s largest drugstore chain.
But the company’s shares climbed more than 4 percent Wednesday, and analysts say the nation’s largest drugstore chain showed signs of recovering from a damaging split earlier this year with Express Scripts Holding Co.
Walgreen said Wednesday that revenue from stores open at least a year fell 6.2 percent. That included an 8.8 percent drop in pharmacy revenue and a 1.7 decline from the rest of the store. All three figures reflected steeper drops than analysts predicted.
Analysts expected, on average, an overall decrease of 5.5 percent, according to Thomson Reuters. They forecast an 8.1 drop in pharmacy revenue, to be blunted in part by a decline of less than 1 percent from the front end.
Revenue from stores open at least a year is considered a key indicator of retailer health because it leaves out results from locations that have opened or closed in the last year.
Walgreen cited generic drug introductions as the main factor behind the revenue drop. The introduction of generic equivalents to popular brand-name drugs like the cholesterol fighter Lipitor has hurt revenue this year for Walgreen and other drugstores because generics cost less than their brand-name counterparts.
On the flip side, these generics also boost profitability, because they come with a wider margin between the cost for the pharmacy to purchase the drugs and the reimbursement it receives.
Overall, Walgreen said November sales fell nearly 4 percent to $5.85 billion compared with last year, with the pharmacy accounting for 63 percent of that total.
Walgreen revenue has slumped throughout 2012 partially because it had stopped filling prescriptions for Express Scripts, which runs prescription drug plans for employers, insurers and other clients as the nation’s largest pharmacy benefits manager. The companies had let an agreement between them expire at the end of 2011, and their new deal didn’t start until Sept. 15.
The split sent Walgreen customers to its competitors to get their prescriptions filled. Walgreen did not mention Express Scripts in its statement on November sales. It hasn’t mentioned the split for the past few months.
Citi analyst Deborah Weinswig said in a Wednesday research note the split was one of several reasons behind Walgreen’s drop in revenue from stores open at least a year. She called the company’s November performance disappointing.
Other analysts said the drugstore chain is showing signs of recovery. Prescriptions filled at stores open at least a year fell nearly 3 percent in November. Morningstar analyst Matt Coffina said in a phone interview that figure has been improving since the middle of the year.
“The bigger, underlying story is they seem to be recapturing a fair bit of Express Scripts prescriptions,” he said.
Credit Suisse analyst Edward J. Kelly also said in a Wednesday research note Walgreen appears to be doing a better job recapturing the lost business. He said a cutback in promotions by Walgreen and competition also are hurting the drugstore chain’s sales.
Total revenue for Walgreen’s first fiscal quarter, which ended Nov. 30, dropped nearly 5 percent to $17.34 billion.
Analysts expected, on average, revenue of $17.64 billion, according to FactSet.
Walgreen operated 8,057 drugstores at the end of last month, or 246 more than a year ago.
Walgreen shares climbed more than 4 percent, or $1.43, to $35.70 in afternoon trading Wednesday. The stock has traded between $28.53 and $37.34 in the past 52 weeks, and is up more than 7 percent since the start of the year.