Walgreen (NYSE:WAG) and Rite Aid (NYSE:RAD) announced their May sales results this week. As Walgreen’s sales continued to sag from Express’ exit, rivals CVS Caremark and Rite Aid continued to capitalize on its loss. Walgreen also renewed another major PBM contract with United Health’s OptumRx and dropped its legal claims against Express Scripts.
Walgreen‘s (NYSE:WAG) comparable sales continued to decline for the fifth consecutive month this May resulting from the disruptive discontinuation of Walgreen’s contract with pharmacy benefits manager Express Scripts. Express accounted for over 12.5% of its business with 90 million prescriptions in 2011. Also, Walgreen and Express Scripts (hat recently also merged with another large PBM Medco) dropped the legal claims filed against each other, again fueling market expectations that it might open the door for reconciliation among the two estranged companies.
Walgreen’s dispute with Express Scripts and prescription business exodus has significantly benefited its competing drug retailers, particularly CVS Caremark that could tap more than 20 million additional prescriptions this year.
Last week, Walgreen also renewed pharmacy-services deal with another major PBM partner UnitedHealth’s OptumRx with a ‘long-term’ agreement, and highlighted the otherwise routine contract renewal to convey that other PBMs are willing to work with it with mutually acceptable reimbursement rates.
Rite Aid (NYSE:RAD), the third largest drug retailer in the U.S., announced its May sales this week with improving same store sales. Its sales have consistently improved for the past six quarters, with 2.5% higher comps for the last quarter, aided by the Wellness loyalty program and store upgrades but the company is yet to report a profitable quarter ever since it acquired Brooks and Eckerd drugstores in 2007 and suffers from high debt.
Nonetheless, the company has conducted two rounds of debt refinancing this year to make sure it timely addresses its upcoming debt maturities. The drug retailer has come a long way from its weakened sales position two years ago, but still has significant debt and lags its larger competitors Walgreen and CVS Caremark in terms sales per store. High debt, continued losses and weak cash flows have also constrained its ability to make growth and efficiency investments.