Walgreen (WAG) shares up 9.24% on earnings

Walgreen (WAG) shares soared as the drugstore chain reported a 7.6% increase in revenues with same-store sales improving 2.4%. Total prescription sales rose 9% and accounted for 66.5% of the firm’s total sales in the quarter. Walgreen’s prescription sales growth follows competitor CVS Caremark’s (CVS) statement in August that it saw no recession in its prescription-drug business. Pharmacies are also expected to benefit from a cold-weather return of the H1N1 virus in the U.S.

In addition to increased pharmacy sales, Walgreen said savings associated with the “Rewiring for Growth” initiative boosted earnings by 17.5%. As part of Walgreen’s “Customer Centric Retailing” initiative, the drugstore chain will start selling beer and wine in a majority of its 7,000 stores. (You can read more about Walgreen’s initiatives in this June post).

The most impactful news is that Walgreen will start offering 90-day prescriptions of maintenance medications to all payers, not just its own pharmacy benefit manger (PBM) customers. This is a direct hit to CVS Caremark’s integrated value proposition and should make it more difficult for CVS to win PBM customers. It’s also bad news for independent PBMs (like Express Scripts) if the market share gains of mail-order pharmacies begin to reverse, and thus eliminate a key component of PBMs’ value proposition to customers. Even more, 90-day retail scripts could serve to accelerate the decline of independent pharmacies to the benefit of large chains, given the increased importance of scale under this model.

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Peter J. Lazaroff, Investment Analyst