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Walgreens Earnings Redux: Are More Stores The Long-Term Answer?

Brian Gilmartin, CFA profile picture
Brian Gilmartin, CFA


  • Margins continue under pressure, both gross and operating margins have narrowed for 5 straight quarters.
  • The $5 bl share repo plan will likely emphasize share buybacks over the dividend payout.
  • Dividend dollars as a % of free-cash-flow at 28% - 30% is still reasonable.
  • Could Walgreens be like other retail - the inevitable death by Amazon ?

Walgreens Boots Alliance (NASDAQ:WBA) reported their fiscal Q3 '17 financial results last week, and while the stock got a strong pop immediately following earnings, the market weakness on Thursday, June 29th, later pulled down the stock and limited the gain on the day.

The big news around the earnings report was that Walgreens was abandoning the Rite-Aid merger (RAD) and instead buying 2,186 RAD stores at a bigger discount than the merger had the stores initially valued.

In addition, WBA announced a $5 billion share repurchase program which is scheduled to expire on August 31, '18 or in the next 15 months.

Here is a quick recap of the quarterly earnings:

1.) The quality of earnings was thought to be poor as WBA had a lower effective tax rate once again at 13%. WBA's effective tax rate has been under 20% since late 2015 and have been volatile since late 2014.

2.) WBA is set to declare its next dividend increase, and the y/y growth has slowed:

5/17 $1.50 4%
5/16 $1.44 7%
5/15 $1.35 7%
5/14 $1.26 15%
5/13 $1.10 22%

Source: internal spreadsheet

Using the quarter just reported, 4-quarter trailing free-cash-flow was $6 billion as of May '17, so the $5 billion share authorization plan will consume most of the free-cash over the next 5 quarters, as it looks right now.

My guess is WBA shareholders will likely see a modest dividend increase with the dividend announcement this quarter.

3.) It looks like front-end comp's were negative again although just slightly at -0.4%, but the front-end, which is WBA's higher margin business continues to struggle.

4.) Gross and operating margins have now compressed for 5 straight quarters.

Analysis / conclusion:

Without getting into a long treatise for readers, most of the growth this quarter at

This article was written by

Brian Gilmartin, CFA profile picture
Brian Gilmartin, is a portfolio manager at Trinity Asset Management, a firm he founded in May, 1995, catering to individual investors and institutions that werent getting the attention and service deserved, from larger firms. Brian started in the business as a fixed-income / credit analyst, with a Chicago broker-dealer, and then worked at Stein Roe & Farnham in Chicago, from 1992 - 1995, before striking out on his own and managing equity and balanced accounts for clients. Brian has a BSBA (Finance) from Xavier University, Cincinnati, Ohio, (1982) and an MBA (Finance) from Loyola University, Chicago, January, 1985. The CFA was awarded in 1994. Brian has been fortunate enough to write for the TheStreet.com from 2000 to 2012, and then the WallStreet AllStars from August 2011, to Spring, 2012. Brian also wrote for Minyanville.com, and has been quoted in numerous publications including the Wall Street Journal.

Analyst’s Disclosure: I am/we are long CVS, AMZN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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