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.