Pharmacy sales help drugstore chains Walgreen, Rite Aid; overhaul gain expected in second half

A jump in pharmacy revenue fueled June sales growth for two of the nation’s largest drugstore chains, and they may start adding gains from the health care overhaul later this year.

Walgreen Co. and Rite Aid Corp. said Thursday that pharmacy revenue from their established stores climbed more than 11 per cent at Walgreen and 5 per cent at Rite Aid last month. Walgreen runs the nation’s largest drugstore chain with 8,215 stores, while Rite Aid ranks third with 4,754. The company in the middle, CVS Caremark Corp., doesn’t report monthly results.

Overall, Walgreen’s revenue from established stores rose 7.5 per cent in June, while Rite Aid’s climbed about 4 per cent. Slower growth from the retail area outside the pharmacy tempered the pharmacy gains.

Revenue from stores open at least a year is considered a key indicator of a retailer’s financial health because it strips away the volatility of recently opened or closed stores.

Last month included one extra Monday and one less Saturday than June 2013, and Walgreen cited that as a factor behind its growth. Mondays are typically the chain’s busiest pharmacy day. Drugstores also tend to do more business on weekdays than the weekend because more customers visit to fill prescriptions after seeing their doctors.

Analysts say drug price inflation also helped sales climb for both companies. Walgreen cited Medicaid prescription drug gains as well as growth in 90-day prescriptions offered through its stores.

In-store pharmacies typically fill 30-day prescriptions for customers, but Walgreen has been pushing sales of 90-day prescriptions at its stores, which face competition from mail-order pharmacies that offer the same benefit.

While pharmacy sales jumped, customer visits at Walgreen’s established stores fell 2 per cent, a detail that Morningstar analyst Vishnu Lekraj found worrying.

The federal health care overhaul has expanded insurance coverage to millions of people, largely through an open enrolment period that wound down this spring. Analysts who cover drugstores say the potential wave of new business from the newly insured has yet to reach drugstores, but that might change as those people start using their coverage.

“I think there’s probably a small health care reform benefit … but no one’s even tried to quantify it,” said Jeff Jonas, a portfolio manager who follows the industry for Gabelli Funds.

Credit Suisse analyst Edward J. Kelly said in a research note that he expects more of a benefit from the overhaul in the second half of the year.

Shares of Rite Aid and Walgreen both outpaced the broader market in Thursday morning trading. Rite Aid’s stock price rose more than 4 per cent, or 32 cents, to $7.49, while Walgreen was up 1.7 per cent, or $1.25, to $74.29.