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Drugstore chains not fazed by Wal-Mart's $4 prescriptions
27-Dec-2006: NEW YORK Wal-Mart Stores Inc.'s offer of $4 generic-drug prescriptions hammered shares of drugstore chains during the fall, but it doesn't appear to be hurting their profits.
Walgreen Co., the nation's largest pharmacy chain by sales, last week said its profit for the fiscal first quarter ended Nov. 30 surged 25 percent, and noted that its income got a boost from sales of generic drugs. The news followed No. 3 drug chain Rite Aid Corp.'s announcement that it turned a third-quarter profit that beat analysts' estimates amid strong pharmacy sales.
Wal-Mart said earlier this month that its rollout of $4 generic prescriptions covering a 30-day supply on about 150 different medications lifted its November pharmacy sales at stores open at least a year, which surged by a midteen percentage. The Bentonville, Ark., retailer said the generic prescriptions also have boosted customer traffic, although the company's same-store sales for the month fell slightly.
With prescription sales at Walgreen, Rite Aid and CVS Corp. maintaining their strength nevertheless, many analysts have concluded that Wal-Mart's pharmacy sales have been fueled by uninsured patients who weren't buying prescriptions anywhere prior to its offer, as the drugstore chains say the overwhelming majority of their prescription customers are insured. The drugstores add that the generic drugs on their shelves, which frequently number five to 10 times the number that Wal-Mart is offering, are frequently priced in a similar range at the $5 or $6 level.
“While the last several months have brought plenty of speculation about the effects of $4 generic drugs, ... we've shown with these results just what our core drugstore business is capable of doing,” said Rick Hans, Walgreen's director of finance.
He noted that generic-drug sales helped lift the company's overall revenues.
Target Corp. has matched Wal-Mart's $4 offer on generics. Meanwhile, Costco Wholesale Corp. originally matched Wal-Mart's offer, but switched away from the strategy earlier this month, saying it had been losing money in the process. Now, Costco instead offers $10 prescriptions on a 100-day supply of generics.
Source: Reading Eagle