Walgreens SGA vs. The Federal Deficit... never before has so much been spent by so few on so little! The similarities are considerable. When the Feds face pressure, like the Sequestration mandate, they bleat and scream "pain to America" if this occurs, and middle America will rue the day these cuts go through. I watched Ray Lahood on Meet the Press this morning and almost threw up at his threats of flight delays and such if the FAA budget was cut by a whole TWO PERCENT. That is total, utter, crap. Show me a senior manager that can't find 2% in spending cuts anywhere in either government or the private sector and I'll show you a manager that needs to be immediately dismissed.
Similarly, every time someone asks Walgreens to accept lower reimbursements that its competitors already accepted, the WAG C-suite bleats and moans about customer inconvenience and unfair, "mean old Mr. Reimbursement" while, all the while, fattening up the cost of Rx care by fancying up neighborhood drugstores with drive-throughs and food sections, and urban locations with bank vaults turned into brow bars and sushi restaurants for an upscale aura.
The mailorder cost advantage is now on the radar in retail pharma, Medicare and Medicaid Rx spend will force a huge shift on maintenance meds, and the contrarians like Walgreens that flaunt retail excess that bloats SGA and costs of doing business will be left behind as CVS, ESRX and UNH clean Walgreens clock in its core market.
That's my opinion and I am sticking to it! The low cost operators will survive and grow in market share. Even Rite Aid may become a survivor, if it can repay its debt before interest rates rise. Walgreens future with no change in course will likely include an abandonment of the pharmacy in its new stores that become a polyglot of Ulta, Starbucks, Whole Foods and P.F. Chang's in upscale areas in America and Europe. Medicare/Medicaid Rx spend is a huge chunk of the Rx market... about 55% of Walgreens pharmacy revenue, by recollection. If the reimbursement rules shift away from WAG's bloated (my opinion) SGA-driven/high-cost structure to a much leaner model including mailorder, WAG will become "the odd man out" in eligibility for pharmacy biz from entitlements that seek cost optimization.
Looks to me like the investment opportunities are in PBM's with mailorder strength, Costco and the drug wholesale trade that caters to Independent Pharma which has no corporate overhead load.
All JMHO. GLTA,
Yank
