Shareholders Seeing Green as Walgreen’s Sales Slip

Gene J. is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Some investors are showing concern that the “sustainable goods” initiative launched by Walgreen (NYSE: WAG) may not be a great investment for the drug store chain or its shareholders.

At last week’s annual meeting in Chicago, an activist shareholder from the National Center for Public Policy Research questioned if selling lower priced, higher quality goods should be central to the drug store’s strategy, rather than marketing more expensive products labeled as “sustainable” or “green.” I agree that that is an excellent question to ask, and suggest that investors refrain from buying shares of Walgreen until CEO Greg Wasson can provide a solid answer to the query.

Walgreen’s shares closed at $39.10, up $0.53, or 1.37%, on Friday, Jan. 11. The company has a market cap of $36.95 billion, and on Jan. 4 reported that its December sales were $6.71 billion, a decrease of 4.0% from $6.99 billion for the same month in fiscal 2012. Calendar 2012 sales were $70.51 billion, a decrease of 3.7% from $73.19 billion in 2011. Fiscal 2013 year-to-date sales for the first four months of this year were $24.03 billion, down 4.4% from $25.15 billion in the comparable period in fiscal 2012.

At the Walgreen stockholders meeting last Wednesday, Justin Danhof, an attorney of the shareholder activist group the National Center for Public Policy Research, asked Walgreens CEO Wasson, “Consider a hypothetical shopping cart containing a hundred dollars worth of commonly purchased retail items. How much more would you personally be willing to pay if all of those products were labeled as ‘sustainable?’”
Opportunity? Or Cost?
Wasson replied that corporate sustainability and social responsibility programs, like the one launched at Walgreen, were an “opportunity” that the retailer could avail itself of “without driving costs up.” He did not, however, directly answer the question posed by Danhof.

Danhof claimed Wasson’s answer was somewhat “incoherent,” and said the company should just “focus on delivering goods with low prices.” 

Rivals CVS Caremark Corp. (NYSE: CVS) and Rite Aid Corporation (NYSE: RAD) also are pursuing green strategies to some extent, but Rite Aid is a small player in the drug retail market and CVS is already seen by analysts as in a bit of a precarious investment, as its pharmacy benefit manager operations are subject to political risk, i.e. changing Medicare and Medicaid reimbursement policies. Remember, many states (as many as 30) are not implementing the Obamacare insurance exchanges. To put it mildly, this will make reimbursement issues a continuing source of concern, not not only for physicians and hospitals, but for investors as well. I know of some hospitals that are owed up to $250 million in delayed quarterly payments by Medicaid.  Can CVS survive with this strategy? I think a change may be warranted, and am only a cautious buy on this stock. Rite Aid is a smaller, more long-term play, in my opinion. Buy if you have the patience to wait for the firm to grow and become a bigger player in this field in the coming years. The chain is building new stores, but at a slower pace than its rivals.
-- Gene J. Koprowski follows health and technology trends as a journalist and is author of Nanotechnology in Medicine: Emerging Applications (Momentum Press, 2012) and other medical and health books. He is a 2008 Emmy Award Nominee for

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