Retailers, consumers and prices
Check out the happy ending to the fight between CVS Caremark and Walgreen over reimbursements for drug prescriptions.
The two drugstore chains left their differences behind and announced a new “multi-year” deal, salvaging a relationship worth billions of dollars.
Earlier this month, Walgreen said it would phase out its arrangement to fill prescriptions for millions of CVS Caremark drug plan members, citing CVS’s efforts to divert customers and inadequate reimbursement rates. CVS retaliated by saying it would dump Walgreen from its network within a month.
The new deal allows Caremark members to continue to fill their prescriptions at Walgreens pharmacies.
Check out the power plays going on in the consumer world.
Walgreen said it will buy Duane Reed for $618 million in cash, catapulting the largest U.S. drugstore operator into the top spot in the New York City area. The deal price also includes the assumption of $457 million in debt.
Duane Reed is owned by private equity firm Oak Hill Capital Partners and operates 257 drugstores in the New York metropolitan area. Duane Reade will continue to operate under its brand name, and Walgreen expects to retain the employees at its stores, pharmacies and distribution centers.
Check out a dose of bad medicine for Walgreen.
Analysts had expected the No. 1 U.S. drugstore chain operator to post a 2.2 percent increase in same-store sales. But the company instead posted a surprise 1.1 percent drop.
Among factors that hurt the company were a calendar shift. This January had one less weekday in it than last year. That might not seem like a big deal, but Walgreen fills more prescriptions during the week so the shift cut 1.3 percentage points from the same-store sales increase.
Pharmacy same-store sales fell 1.2 percent, a decline made worse by the fact that some of those sales have were in the form of H1N1 flu shots, a one-time item.
Check out the better-than-expected profit at Walgreen.
The largest U.S. drugstore chain saw shares rise 10 percent as its fourth-quarter profit benefited from a make-over that includes sprucing up stores and cutting jobs.
Walgreen also announced a new plan to promote 90-day prescriptions available at its stores as an alternative to the mail-order programs favored by many insurance programs.
Walgreen Co. said consumers’ bargain shopping hit profit in the latest quarter. Still, Walgreen and other retailers might actually get a small benefit from the economic downturn and bank fallout. If banks ease up from opening ATMs on every corner, it could get easier for retailers to find attractive space for their stores.
The drugstore’s executives, in response to a question from UBS analyst Neil Currie during Monday’s conference call, said they’ve seen competition easing for good sites. They said banks started pulling back about six months ago and Walgreen now has more negotiating power when it’s looking for space. Still, it’s sticking with its plan to slow down its heavy dose of store openings. It added 561 stores to its lineup in fiscal 2008 and plans to add 495 new stores in fiscal 2009.
(Due to a tabulation error in the research, STORES Magazine has issued a corrected list. This is being corrected to remove Coldwater Creek from the Top 10 list and replace it with Citi Trends at No. 10)
Though the retail industry cooled last year to its slowest growth since 2002, a number of retail companies experienced fiery growth, according to the National Retail Federation. The hottest retailers, in general, grew through acquisitions, according to the trade group’s STORES Magazine.
The No. 3 U.S. drugstore chain said its pharmacy same-store sales fell 0.5 percent, as generic drugs were introduced and allergy medicine Zyrtec was switched to over-the-counter status.
Generic drug rollouts hurt rival Walgreen as well. That company said a day earlier those drugs cut into its pharmacy same-store sales by 2.1 percentage points.
Check out the quarterly results at Walgreen, one of the largest U.S. drugstore operators.
The company posted a 2 percent increase in quarterly profit, amid a weak U.S. economy and slowing growth in sales of prescription drugs — in the reported quarter, Zyrtec was switched to over-the-counter status.
Check out the Easter boost in drugstore land.
Drugstore chains have been hurt by the weak U.S. economy of late, especially in the nonprescription part of the store.
But Easter seems to have helped at least one of the largest drugstore chains: Walgreen’s.
Walgreen Co said strong sales of Easter merchandise helped it post better-than-expected general merchandise sales in March. And they aren’t just talking about the fact that Easter came early this year, moving up purchases that would normally have occurred in April.
“The company recorded strong Easter seasonal sales, and front-end sales exceeded expectations for the month despite the slowing economy,” it said in a news release.
Of course, those front-end sales were needed to offset tepid prescription drug sales. The switch of allergy medicine Zyrtec to over-the-counter status, and a slower flu season for prescriptions hurt sales in that area as did an influx of lower-priced generic drugs in the past 12-months.
Still, for at least a month, it was chocolate bunnies to the rescue.
Also in the basket:
Best Buy profit better than expected
Lululemon’s sales double, to close Japan stores
Knit prices soar up to 20 percent for fall (WWD, subscription required)