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Strategies & Market Trends : Value Investing
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Iron Mick
To: Harshu Vyas who wrote (73010)6/29/2023 8:07:14 AM
From: Spekulatius1 Recommendation  Read Replies (1) of 78958
 
There is no better indicator for WBA loss in market power than the gross margin chart hat i posted earlier. A gross margin reduction from 28% to 20% is very signficant and it's difficult to make this up in cost cuts etc.

I think part of it is due to the front end of the stores (where people used to by incidentals and cosmetics / care products) has become less attractive to consumers.

Simply speaking, the market power has moved to PBM and insurers and there are plenty of options to pick up prescriptions in supermarkets, Walmarts, Targets etc which have a better front end. those stores use prescriptions to drive profit in their stores and people go there anyways. They also can live with lower profit margins.

I don't see this changing or mean reverting, it is likely that this trend will continue and cost cutting from WBA will only result in temporary relief from profit erosion. This makes WBA a value trap.

I think CVS is in a better shape but their drug store business generates still more than 1/3 of their income. I thought they would build out some stores to service centers, but what I see in my area seems like a half baked approach to add medical services to a drug stores without investing much, while they make very expensive acquisitions at the same time.
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