Walgreen’s Sames Store Sales Decline

Walgreen’s Sames Store Sales Decline

Walgreens Hit by Dropping Same-Store Sales, Amazon Effect, Offers $10 billion in Financial Engineering, Shares Plunge 10%

Brick & Mortar Meltdown: Dog of the Dow on 3rd Day in the Dow.
It was a melancholic but symptomatic day for the US economy when a once mighty industrial company that manufactures big complex things, such as diesel-electric locomotives, jet engines, and power-plant turbines, was kicked off the Dow after 111 years and replaced by a retailer that sells mostly imported drugs, imported plastic stuff, and packaged junk food. That was Tuesday morning when GE (GE) was replaced by Walgreens (WBA).

Today it became even more symptomatic for the US economy when Walgreens announced declining same stores sales – as part of the brick-and-mortar meltdown – and a $10 billion share buyback program to soothe rattled investors’ nerves, with money it would have to borrow, and its shares, in the morning of their third day on the Dow, plunged 10%.

Walgreens Boots Alliance is the largest “retail pharmacy, health and daily living destination” in the US and Europe, as it says, with 13,200 stores in 11 countries. Back in 2012, it acquired a 45% stake in Swiss pharmacy giant Alliance Boots and in 2014 bought the remainder for a total cost in cash and shares of $10.7 billion.

In its third quarter, ended May 31, Walgreens completed the acquisition of all 1,932 Rite Aid stores, which inflated the revenue comparisons with the same quarter a year ago. Hence the importance of same-store sales (or “comparable” store sales), which only measure revenues at stores that Walgreens operated for at least a year.

Walgreen’s US retail sales rose 5.2% in the quarter compared to the quarter a year ago. But same-store sales dropped 3.8%, “reflecting continued focus on profitability,” as it says elegantly. In plain text, prices are high to fatten up profit margins, but consumers aren’t going for it.

This includes pharmacy sales – accounting for 72.5% of US retail sales – which jumped 19% from a year ago, “primarily due to higher prescription volume from the acquisition of Rite Aid stores.” It sure helps a lot to buy nearly 2,000 stores from a competitor.

But same-store pharmacy sales were flat from a year ago, “as brand inflation was offset by reimbursement pressure and the impact of generics.” Brand inflation… hmm.

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Tesla Stock Drops After Earning Call

Tesla drops the day after controversial earnings call

  • The company’s earnings report on Wednesday showed a narrower-than-expected loss as Tesla continued to burn through cash — but investors seemed to have weathered all of that just fine.
  • The stock ticked up a few percent immediately following the report.
  • It wasn’t until the company’s earnings call — during which CEO Elon Musk refused to answer what he called “boring bonehead questions” from analysts — that shares tanked.

Tesla dropped as much as 8 percent Thursday, a day after an earnings beat and bizarre call with analysts.

Shares started trading at $278.79 after closing Wednesday just above $301.

The company’s earnings report on Wednesday showed a narrower-than-expected loss as Tesla continued to burn through cash — but investors seemed to have weathered all of that just fine. The stock ticked up a few percent immediately following the report.

It wasn’t until the company’s earnings call — during which CEO Elon Musk refused to answer what he called “boring bonehead questions” from analysts — that shares tanked.

As of Thursday’s open, the stock is down nearly 10 percent on the year and more than 25 percent off its 52-week high.


Another Casualty of the Retail Shakeout

Legendary U.S. guitar-maker Gibson files for bankruptcy

(Reuters) – Gibson Brands Inc, the maker of guitars played by the likes of B.B. King and Elvis Presley, filed for Chapter 11 bankruptcy protection on Tuesday with a plan to reorganize its musical instrument business under the new ownership of its lenders.

Nashville-based Gibson, whose legendary brands include Les Paul and SG, has been suffering under $500 million in debt linked to the acquisition of its consumer electronics business overseas, where sales have been in sharp decline.

In a filing in U.S. Bankruptcy Court in Delaware, Gibson said the overseas consumer electronics business will be wound down, allowing it to re-focus on its core guitar-making and audio businesses.

The audio business includes KRK, Cerwin Vega and Stanton headphones, loud speakers and turntables for amateur and professional musicians and sound engineers.

“This process will be virtually invisible to customers, all of whom can continue to rely on Gibson to provide unparalleled products and customer service,” Chief Executive Henry Juszkiewicz said in a press release.

Juszkiewicz acquired Gibson in 1986.

Under a restructuring pact, senior lenders including Silver Point Capital, Melody Capital Partners LP and funds affiliated with KKR Credit Advisors will exchange debt for equity ownership in the reorganized company.

Gibson said sales of its electric guitars grew 10.5 percent to $122 million in the 12 months through January from a year earlier.

Gibson, founded in 1894, makes its electric guitars in U.S. factories in Nashville and Memphis, Tennessee and its acoustic guitars in Bozeman, Montana. It sells more than 170,000 guitars annually in more than 80 countries.

It bought the Hong Kong-based consumer electronics arm from Philips in 2014, and started to wind down the unsuccessful business — including formal liquidation proceedings in Hong Kong, the United Kingdom and six European countries — on April 30, according to court papers.

Gibson has secured $135 million in debtor-in-possession financing to fund its operations during the Chapter 11 proceedings. It plans to exit bankruptcy on Sept. 24.


Amazon Gets Into Mortgages

Amazon hiring head of newly-formed mortgage lending division

Earlier this week, we reported to the LendingLife community that online shopping giant Amazon may be looking to get into the mortgage lending business, or at least that’s the rumor among mortgage lending professionals.

While limited in scope, Amazon’s plans are to start with offering checking programs first, then maybe move into the debt product space after.

Well, after reporting that, we’ve received information that Amazon is currently looking to hire someone to lead their newly-formed mortgage lending division.

Due to non-disclosure agreements, we probably shouldn’t reveal their identities. After all, with Amazon planning a move into mortgage lending, it’s best we work with them and not against them. Am I right?

We can say that if you look at the top 10 HMDA lenders and pick out the nonbanks, that’s where Amazon is recruiting their talent.


Potential Pension Problems

‘Silver Tsunami’ hits as pension costs devour California school budgets

The pro- and anti-reform houses of education land are prepping for the next big battle between charter schools and teachers unions. The great houses in philanthropic foundation land are deciding where to place their bets. But winter is coming, and no one can avoid it.

Schools in Tracy faced a deficit of $8 million. The hole was $124 million deep in San Diego Unified. After making millions in cuts, Oakland Unified faces a $9 million deficit next year and $20 million in 2020. These are just a few of the hundreds of districts that made cuts.

These deficits appeared at a time when California isn’t facing a budget crisis. In fact, after years of increases, California’s education spending will be the highest ever.

What happens when state funding improves, but local school budgets get worse? And how did we get into this situation in the first place?

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Debt Problems in Retail, Energy and Telcom

Bulging Debt May Spell Trouble for Energy, Telecom and Retail


While many companies have shrewdly taken advantage of rock-bottom interest rates over the last decade, bulging debt in industries like retail, energy and telecommunications is a burden that investors may need to worry about.

Many retailers, for example, have been struggling with competition from online giants like Amazon and Walmart. The debt of major companies like Neiman Marcus, PetSmart and Sears is already rated as speculative (also known as high-yeld or junk). And Diane Vazza, head of global fixed-income research at Standard & Poor’s, said many debt-laden retailers have already suffered credit downgrades this year. These include Sears, Payless and Guitar Center Holdings.

Once a company’s debt is downgraded to speculative from investment grade, it may find the footing more slippery. Companies that fall into speculative grade ratings (B- or lower in the S.&P. ratings system) tend to accelerate toward even lower ratings, Ms. Vazza said.

The risk to investors — and the interest the companies must pay for new borrowing — rises, adding to cash flow stress. When the stress is great enough, companies can fail.