Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Good StocksStocks

Walgreen: a Revenue and Retail Giant

Walgreen Boots Alliance (NASDAQ: WBA) has made a very brilliant move that could make it the third-largest retailer in terms of revenue. That move is the acquisition of Rite Aid (NYSE: RAD) for $17.2 billion.

The merger could make Walgreen number three in revenue because Rite Aid reported a third-quarter TTM revenue of $27.85 billion on Aug. 31, 2015. When that is added to the $103.44 billion Walgreen reported on the same day, you get a figure of $131.29 billion, which exceeds the third-quarter revenue numbers of every U.S. retailer except Walmart Stores Inc. (NYSE: WMT) at $485.62 billion and CVS Health (NYSE: CVS) at $149.20 billion.


If the Rite Aid buyout is successful, Walgreen would be bigger than Costco Wholesale (NASDAQ: COST), which reported a third-quarter revenue number of $116.20 billion, and Kroger (NYSE: KR) which reported third-quarter revenues of $108.78 billion, for the first time. This makes Walgreen one of the nation’s largest retailers, with greater revenues than any company but CVS or Walmart.

A New Retail GiantThat should allow Walgreen to engage in the kind of deep discounting that Walmart, Costco and Kroger are capable of. Such discounting is important because those chains and Safeway operate pharmacies in their stores, making them direct competitors with Walgreen. It will also help Walgreen fend off the growing threat of small box retailers, such as the fast growing Dollar General (NYSE: DG).


If that was not enough, the Rite Aid deal will give Walgreen a massive retail footprint in the United States that could exceed Dollar General’s. Walgreen operated around 2,232 stores in the United States in February, while Rite Aid currently has around 4,600 locations. If all those numbers were combined, Walgreen would own 12,832 drugstores.

Even if Walgreen has to sell or close up to 1,000 locations to comply with antitrust laws, the company would still have nearly 12,000 stores in all 50 states, the District of Columbia, Puerto Rico, and the Virgin Islands. That footprint would make Walgreen both the largest pharmacy chain in the United States and the third-largest operator of small box discount stores after Dollar Tree (NASDAQ: DLTR) and Dollar General.

A Very Promising Future

The bottom line is that Walgreen could soon be in a position to generate some very impressive revenues from this very smart deal. The drugstore company got an impressive bargain when it bought Rite Aid.

More importantly, Walgreen is at the cutting edge of retail technology. It became one of the first retailers to accept Apple Pay. More recently, Walgreen became the first major American retailer to integrate its rewards card program with Apple Pay.

Beyond that, Walgreen benefits from the growth of the number of Americans with health insurance created by Obamacare, which increases its customer base. This company has a bright future and a management that is making all the right moves.

Disclosure: the Blogger holds a very modest long position in Kroger.