Following the news that Walgreen (NYSE:WAG) will start filling Express Scripts prescriptions from September 15, CVS Caremark (NYSE:CVS) has raised its 2012 earnings guidance to include the continued benefit during the third quarter. The company’s existing guidance only reflected the estimated benefit from the stalemate continuing through the end of the second quarter.
With its 7,400-strong drugstore network and strong geographical overlap with Walgreen’s retail footprint, CVS has been the biggest beneficiary of the Walgreen-Express fallout and is likely to have gained millions of prescriptions and new customers over the last two quarters. It also hopes to retain at least 50% of this new business during the period into the fourth quarter.
Last quarter, CVS’s retail business benefited significantly from millions of prescriptions and new customers falling out of the contract impasse between Walgreen and Express Scripts. Its retail segment revenues increased by 10% last quarter (y/y), driven by 8.4% higher same store sales and 126 new stores additions. The deal would bring a large part of the 90 million Express Scripts prescriptions back to Walgreen stores, whose comps had declined by 8-9% this year in the absence of Express Scripts business.
Capitalizing on the delay by Walgreen and Express Scripts in mending ties, CVS Caremark has been trying to woo these customers to turn more sticky as they continue to frequent CVS drugstores. The drug retailer has positioned itself well to attract customers with its integrated retail-pharmacy services business model and unique services like Maintenance Choice and Pharmacy Advisor. Had Walgreen-Express not reconciled, CVS could have picked up 20% to 30% of those transferred scripts till year-end (~20 million).