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PBM dispute impacts Walgreens' January sales
February 3rd, 2012
DEERFIELD, Ill. – Walgreen Co. saw same-store sales drop in January amid a sharp decline in its pharmacy business, which took a hit from the company's stand-off with pharmacy benefit manager Express Scripts Inc.
Walgreens said Friday that comparable-store sales in January fell 4.6%, despite a 0.8 percentage point lift from calendar day shifts (one extra Tuesday and one fewer Saturday). The retailer also faced a difficult comparison from a year ago, when same-store sales rose 6.1% in January 2011.
The January 2012 comp-store sales result marked the drug chain's first same-store sales decrease since October 2010 and continued a downward monthly trend from gains of 0.4% in December, 1.8% in November, 2.6% in October, 3.1% in September and 5.6% in August.
On the plus side, same-store sales in the front end sales grew 1.6% in January, and shopper basket size increased 2.2%. Customer traffic in comparable stores, though, was down 0.6%.
In the pharmacy, comp-store sales sank 7.9% in spite of a positive impact of 1.3 percentage points from calendar day shifts. Walgreens said comparable pharmacy sales were negatively impacted by 2.1 percentage points from generic drug introductions; 2.4 percentage points from a lower incidence of cough, cold and flu; and 10.6 percentage points from the chain no longer being part of Express Scripts' pharmacy provider network as of Jan. 1. Pharmacy sales represented 63.6% of total sales for the month.
Prescriptions filled at comparable stores declined 8.6% in January, reflecting a positive impact of 1.3 percentage points from calendar day shifts and negative impacts of 1.5 percentage points from a lower incidence of flu and 10.6 percentage points from the chain being out of the Express Scripts pharmacy network. Walgreens said prescriptions processed by Express Scripts made up 12.4% of the chain's prescriptions in January 2011.
Flu shots administered at pharmacies and clinics season-to-date were 5.5 million versus 6.3 million a year earlier, according to Walgreens.
"We expected that January would be a very challenging month on a comparable prescription basis because of the impacts from not being part of the Express Scripts network as of Jan. 1 and the much milder cough, cold and flu season we have been experiencing," Kermit Crawford, president of pharmacy, health and wellness services and solutions at Walgreens, said in a statement.
As of late morning trading on Friday, Walgreens' stock price was $33.36 per share, down 17 cents, or about 0.5%.
"Pharmacy comp sales decreased 7.9%, well below our -4.0% forecast and the -4.5% consensus projection," analyst Mark Miller of William Blair & Co. wrote in a research note on Walgreens' January results. "Excluding a 1.3% beneficial impact from calendar shift, pharmacy comps declined 9.2%. Roughly half of the variance appears to be due to weaker underlying growth, which was down more versus the prior year in January than in previous months. The other half of the shortfall is due to the 10.6% negative impact of file transfers from Express Scripts plan members."
Walgreens noted that it saw a strong response to its January promotion of one-year memberships in its Prescription Savings Club. More than 700,000 new memberships were gained for the program, which offers savings on over 8,000 branded drug and all generic medications. For more than 400 generic drugs, Walgreens offers a three-month supply for less than $1 a week.
"With January now behind us, we are moving forward with relationships with large and small employers, health systems, physician groups and other PBMs who value Walgreens ability to help lower overall health care costs," Crawford stated. "As we expect these relationships to grow, and as we move past the impact from this year's weak flu season, we anticipate an improvement in the coming months in the number of comparable prescriptions filled relative to January's result."
Looking ahead, Walgreens said it expects prescriptions filled in fiscal 2012 to come in at the low end of its previously announced range of 97% to 99% of prescriptions filled in fiscal 2011. Besides the impact of not being in the Express Scripts network, including for clients such as Tricare and WellPoint, the company cited a "much weaker than expected" flu season and a general weakness in industry prescription trends.
Miller said in his report that the 10.6% decline in prescription count in January that Walgreens attributed to the Express Scripts situation "suggests that there is a seasonal element, as Express Scripts prescriptions comprised 12.4% of Walgreens' total prescriptions in January 2011 versus 11% for the full year, and the company retained a little less than 15% of the business in January, on the low end of our 15%-20% estimate and below the company's ultimate goal of 25% retention."
He added, "Notably, the company said it now expects prescriptions filled in fiscal 2012 to be on the low end of its previously announced range of 97%-99% of 2011 levels. While we believe there will be some midyear conversions and that our 15%-20% estimate for retention may prove to have been correct and possibly conservative, we are nevertheless projecting a retention rate of 15%."
Overall in January, Walgreens' revenue slipped 2.3% to $5.80 billion from $5.93 billion a year earlier. Front-end sales increased 2.7 percent, while pharmacy sales dropped 6% during the month.
"We are pleased with our front-end performance in January and that front-end comparable sales increased year over year, demonstrating the value of Walgreens to our customers as we continue to move forward with our strategy to become America's first choice for health and daily living," Walgreens president and chief executive officer Greg Wasson said in a statement.
Walgreens reported that for the first five months of fiscal 2012, revenue totaled $30.94 billion, up 2.9% from year-to-date sales of $30.08 billion in the comparable period in fiscal 2011.
During January, Walgreens opened 14 stores, including two relocations. As of Jan. 31, the chain drug retailer operated 7,830 drug stores, 161 more than a year ago, including 21 stores acquired over the last 12 months.
*Editor's Note: Article updated with analyst comment.