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  • yank.wags_chain yank.wags_chain Mar 25, 2008 11:23 AM Flag

    Am I overlooking something big here?

    In terms of ROCE, the earnings increase was, in fact, rather anemic. There were 125 new stores opened in the QTR, by recollection, and the capital used to fund this ridiculous strategy is enormous. The extra day and calendar changes were the major (and non-recurring) source of improvement. WAG also benefitted from its release coinciding with an exuberant trading day on the street, leading to today's inevitable pullback.

    The "Wellness" initiative actually makes a lot of future sense. Walgreens paid WAY too much for its initial foray into this business, but the future will see the wellness sector as one of the 3 cornerstones of healthcare management, so I think it makes sense. A lot more sense than opening largely unneeded new stores and narrow-menu clinics.

    The clinic strategy is patently ridiculous. It is a poor investment for both Walgreens and Walmart. Fully implemented, it will inevitably lead to another series of USA Today articles, a few years down the pike, ridiculing a retail chain's asinine entry into an alien domain... with horrific morbidity results and legal charges to drain shareholder value and Corporate reputations.

    If Walgreens is to show promise as an INVESTMENT it must cease its childish new store expansion program. This failing, it can only launch broadened expansion strategies by ramping up cost reductions in the retail drugstore unit or by borrowing lots of money it has never needed, previously. The first choice destroys customer satisfaction. The second choice leads to an earnings malaise when inflation eventually pushes rates higher.

    No need to rush into a sale. With your 10% employee stock discount and the still depressed S/P you have time to watch the action before making a "sell" decision.

    Good luck.


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