Rite Aid Corp. and Walgreen Co. pointed to generic drug introductions as a key factor in same-store sales declines for June.


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Generics take bite out of same-store sales

July 16th, 2012

NEW YORK – Rite Aid Corp. and Walgreen Co. pointed to generic drug introductions as a key factor in same-store sales declines for June.

Comparable-store sales in June fell 1% year over year at Rite Aid — the drug chain’s first monthly comp-store decrease in over a year — and dropped 10% at Walgreens, which also continues to feel the impact of no longer being in the Express Scripts Inc. pharmacy network because of a contract impasse.

For May, same-store sales had gained 1.1% at Rite Aid and fallen 5.8% at Walgreens.
In the pharmacy, June same-store sales were down 1.6% at Rite Aid and 15% at Walgreens.

New generic drugs negatively impacted comparable pharmacy sales by 6.7% at Rite Aid and by 5.8% at Walgreens during the month. For both chains, generic drug introductions had shaved pharmacy comps by about 4% in May, 3% in April and 2% in March, February and January.

“The generic impact on pharmacy sales was significantly higher in June,” William Blair & Co. analyst Mark Miller wrote in a research note on Walgreens’ June sales. He cited a rapid switch to generic Plavix as one driver of the bigger impact from new generics. “While investors are aware of the building generics wave, we believe that forecasts did not adequately reflect the shift this month.”

Though more generic prescriptions reduce sales totals due to lower pricing, they boost profit because of larger margins.

“Walgreens typically experiences a large step-up in gross profits in the first six months after a patent expiration (and then a partial step-down after the exclusivity period, the opposite of CVS), so this is a favorable indicator for August-quarter profitability,” Miller noted.

Prescriptions filled at comparable stores in June grew 2.9% at Rite Aid but sank 11.9% at Walgreens. The impasse with Express Scripts negatively impacted prescription count and pharmacy sales at comparable stores by 10.7%, Walgreens said, adding that calendar day shifts and lower incidence of flu also pruned those results.

In the front end, June same-store sales inched up 0.3% at Rite Aid and dipped 1% at Walgreens, which also reported a 2.3% decrease in customer traffic and 1.3% growth in basket size during the month.

Both chains saw overall revenue tail off in June. Rite Aid said total drug store sales declined 1.6% to just over $1.92 billion for the month, while Walgreens reported overall sales of $5.63 billion, down 6.8%.

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