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.


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.


Is Telsa in Trouble?

Tesla is just months from a total collapse, says hedge-fund manager

Unless Elon Musk “pulls a rabbit out of his hat,” Tesla will be bankrupt within four months, says John Thompson of Vilas Capital Management.

“Companies eventually have to make a profit, and I don’t ever see that happening here,” he told MarketWatch. “This is one of the worst income statements I’ve ever seen and between the story and the financials, the financials will win out in this case.”

Thompson manages $25 million and his Tesla TSLA, -2.85%  short is the fund’s biggest position. To be fair, he’s been betting big against Tesla for years, which, of course, means he’s endured some brutal stretches.

Last April, for instance, the stock hit a record high around the $300 mark, and Musk was right there to troll the Tesla bears.

From that point, the stock continued to break new ground, eventually topping out at $389.61. But despite Tesla’s strong performance in 2017, Thompson’s fund still managed to churn out a 65% gain for the year.

Now, Tesla’s back to where it was when Musk fired off his “Shortville” tweet, and Thompson is confident his bet is about to pay off nicely.

In fact, Thompson says if his prediction comes true, his fund could surge by another 50%. With that in mind, he says he’s investing $500,000 of his own money.

“Tesla, without any doubt, is on the verge of bankruptcy,” he told clients in an email over the weekend. He explained that funding will be hard to come by in the face of problems in delivering the Model 3, declining demand for the Model S and X, extreme valuation and a likely downgrade of its credit rating by Moody’s from B- to CCC.

“As a reality check, Tesla is worth twice as much as Ford [estimate of the enterprise value of both companies], yet Ford F, +0.99%  made 6 million cars last year at a $7.6 billion profit while Tesla made 100,000 cars at a $2 billion loss,” Thompson said. “Further, Ford has $12 billion in cash held for ‘a rainy day’ while Tesla will likely run out of money in the next 3 months. I’ve never seen anything so absurd in my career.”

Tesla declined to comment on Thompson’s views.




Industry Amazon Threatens

These are eight industries that have been threatened by Amazon’s increasing domination:

Food delivery businesses

Blue Apron’s disastrous IPO reveals how big of an impact Amazon’s entrance in a new industry can have on competitors.

The company went public in June. When Amazon filed a trademark application for “prepared food kits” on July 6, Blue Apron’s stock sank 11%.

Amazon’s success has continued to plague Blue Apron. In January, the company’s shares fell more than 6% after One Click Retail’s 2017 Grocery Report showed that Amazon had made impressive gains in the US grocery market.

Shoe stores

As customers shop for shoes directly from Amazon, analysts saycompanies like Foot Locker and Finish Line are in danger. In August 2017, UBS analyst Michael Binetti downgraded both companies, saying it is “almost certain” that sneaker retailers will lose market share to Amazon.

“The disruption that has characterized the retail industry recently is not going away,” Foot Locker’s CEO Richard Johnson said in a call with investors in February. “Consumers want experiences, they want cool products, and they want it all — fast.”

Foot Locker plans to close approximately 110 stores this year after closing 147 stores globally in 2017.

Grocery stores

Amazon bought Whole Foods in August 2017, which dealt a massive blow to US grocery stores as it forced its way into the brick-and-mortar market and threatened to drive prices down.

The retailer is already the largest seller of groceries online. It’s estimated to have 18% of the US online grocery market, which is double the second-place share held by Walmart.

By having access to brick-and-mortar locations, the company is able to expand its reach across the US and use these stores as distribution centers for online orders. And, Amazon is building out its own brick-and-mortar concept, with the first Amazon Go store opening in Seattle in January.

Consumer staples

The future of batteries may be online — and that’s bad news for companies like Energizer.

While online sales of batteries only make up roughly 5% of total battery sales today, UBS said in a note that it expects that figure to rise to 17% by 2025. With Amazon making up roughly 90% of online battery sales, often from its own private-label battery brand, this could create some major complications for Energizer.

Department stores

Macy’s and other department stores, such as JCPenney, are facing off against Amazon — and coming up short, with hundreds of closures in recent years.

“Internet retailers (led by Amazon) have added $27.8 billion to their apparel revenue since 2005, while dept stores have lost $29.6 billion,” Morgan Stanley analysts wrote in a 2016 note.“This share loss appears at risk of accelerating given 1) Amazon’s bigger push into fashion, and 2) consumer willingness/acceptance to shop fashion through Amazon.”

Launching the Prime Wardrobe service in June 2017 was “another nail into the department store coffin,” Wells Fargo analyst Ike Boruchow wrote in a note to clients.

Upscale retailers

Nordstrom is another traditional retailer getting hit hard by Amazon’s online dominance.

“Amazon knows more about the consumer than they do,” CNBC’s Jim Cramer wrote after Nordstrom reported another disappointing quarter in May 2017. “They — the best out there — are still doing guesswork, with one brick-and-mortar hand tied behind their backs.”

And in October, Scott Galloway, a professor of marketing at NYU Stern School of Business who correctly predicted the company would buy Whole Foods, said Amazon could buy Nordstrom next.

Book stores

The Barnes & Noble versus Amazon battle has been going on for years. However, the discrepancy between the two has been especially grim recently.

Barnes & Noble reported in March that comparable salesdecreased 5.8% in the most recent quarter. The biggest culprit: lower traffic, as fewer people visit stores.

Healthcare companies

Amazon’s latest venture with Warren Buffett’s Berkshire Hathaway and JPMorgan Chase & Co, announced in January, threatens to have a big impact on the US healthcare market.

The announcement sent ripples through the healthcare market; the share price at CVS and Walgreens dropped 4.5% to 6% in premarket trading, and UnitedHealth dropped 6.2%, Reuters reported.