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Will These Drugstores Change Course in 2013? CVS Caremark Corporation (CVS), Walgreen Company (WAG)

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The competition between the two drugstores giants CVS Caremark Corporation (NYSE:CVS) and Walgreen Company (NYSE:WAG) continues. According to the recent quarterly reports CVS Caremark Corporation (NYSE:CVS) business keeps growing while Walgreen is slowly declining. Is Walgreen capable to turn it around in 2013? Will CVS’s growth in revenues continue?

CVS Caremark Corporation (NYSE:CVS)In the last quarter of 2012, revenues of CVS spiked by nearly 10.9% compared to the same quarter in 2011 and by 3.9% compared to Q3 2012. The company’s operating profitability also rose from 5% in Q4 2011 to 6.2%. On the other hand, Walgreen’s revenues fell by 4.6% in the recent quarter and its profit margin declined from 5% in the first quarter of the fiscal of 2012 to 4.1%. Let’s try and examine the reasons for these results. First, let’s turn to the recent industry developments:

On a national level, retail sales rose last month. According to the recent retail sales report, total retail sales increased by 0.5% in December 2012 compared to November and by 4.7% compared to December 2011. Moreover, the report also shows the total sales in Health and Personal Care Stores increased by only 1% during 2012 compared to 2011. This sector’s sales rose by 1.4% during December compared to November and by 1.1% compared to December 2011. Based on these numbers, the sales in U.S Health and Personal Care sector slightly increased not only in recent month but also during the entire year.

This could suggest that most of the growth in revenues of CVS was less related to the growth of the industry and more to do with the inner changes in this industry. Specifically, CVS’s revenues grew on account of Walgreen’s business.

During December, Walgreen’s revenues declined by 4% compared to December 2011. Most of the drop in sales was due to the decline in pharmacy sales by 4.9%. One of the main reasons for the drop in revenues of Walgreen was due to the company’s former dispute with Express Scripts Holding Company (NASDAQ:ESRX). This dispute resulted in a sharp drop in Walgreen’s Prescriptions filled revenues. But in January the sales in this segment grew by 13.6% compared to January 2012. Despite this dispute shares of Express Scripts spiked by 20.8% during 2012. From the beginning of the year this company’s stock rose by 3.2%. On the other hand, the company’s revenues changed direction and grew by 6.3% during January 2013. The rise in revenues of Walgreen during January was partly due to the bad flu season that struck the U.S.

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