Rite Aid Corporation (RAD), Walgreen Company (WAG): Two Drugstores, Two Destinies

Clearly, many of the customers coming back to Walgreen were coming from Rite Aid Corporation (NYSE:RAD). For the month of May, Rite Aid’s same-store prescription count fell by 0.3%. May marked the second straight month of lower same-store prescription counts. For the full quarter, Rite Aid experienced a 0.1% decline in same-store prescription count.

Watch out!
Walgreen Company (NYSE:WAG) shareholders have plenty of reasons to feel good about the company’s long-term prospects. Walgreen operates the largest drugstore chain in the country, and customers who left during the Express Scripts Holding Company (NASDAQ:ESRX) dispute seem to be coming back fairly quickly. By contrast, Rite Aid shareholders should be concerned about continuing deterioration in key metrics, like same-store prescription count.

For a while, Rite Aid Corporation (NYSE:RAD) may be able to maintain its profitability in the face of stagnant sales by closing underperforming locations, and reaping the rewards of generic drug introductions. (Generics are more profitable for drugstores than name-brand drugs.) Longer-term, though, Rite Aid’s trend is unsustainable. If customers continue to return to Walgreen Company (NYSE:WAG), Rite Aid will find itself back where it was in 2010 or 2011: mired in constant red ink. Unfortunately, Rite Aid’s FY13 recovery seems more and more like a blip on the radar screen, rather than a sustainable recovery.

The article 2 Drugstores, 2 Destinies originally appeared on Fool.com and is written by Adam Levine-Weinberg.

Adam Levine-Weinberg has the following options: Long Oct 2013 $2.5 Puts on Rite Aid. The Motley Fool recommends Express Scripts. The Motley Fool owns shares of Express Scripts.

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