Walgreen Co.Third Quarter 2008 Earnings Conference
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Transcript of Walgreen Co.Third Quarter 2008 Earnings Conference
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© Copyright 2008 Walgreen Co.
Third Quarter 2008 Conference CallJune 23, 2008
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2© Copyright 2008 Walgreen Co.
• Introduction / Safe Harbor Rick HansDivisional VP - IR & Finance
• Q3 Highlights Jeff ReinChairman & CEO
• Senior Management Additions Wade MiquelonSenior VP & CFO
• Q3 Financials Bill RudolphsenSenior VP & CRO
• Current Environment Greg WassonPresident & COO
• Summary Jeff Rein
• Questions & Answers All
Third Quarter 2008 Agenda
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3© Copyright 2008 Walgreen Co.
Safe Harbor
• Certain statements and projections of future results made in this presentation constitute forward-looking information that is based on current market, competitive and regulatory expectations that involve risk and uncertainty.
• Please see our Form 10-K for a discussion of factors as they relate to forward-looking statements dated August 31, 2007.
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4© Copyright 2008 Walgreen Co.
Third Quarter Highlights
• Record sales and earnings• Strong front-of-store sales• Outpacing industry prescription growth• Continued organic growth – best locations,
strong brand• Disciplined and sustainable SGA expense
control
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5© Copyright 2008 Walgreen Co.
16.0%
9.3%
14.7%
10.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08
Year-Over-Year % Increase
SG&A
Gross Profit
Controlling SG&A
Note: SG&A data adjusted for Hurricane Katrina in the fourth quarter 2005
Source: Company Data
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6© Copyright 2008 Walgreen Co.
Senior Management Additions
Wade MiquelonChief Financial Officer
Bill RudolphsenChief Risk Officer
Sona ChawlaSenior VP of E-commerce
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7© Copyright 2008 Walgreen Co.
Senior Management Additions
Wade MiquelonChief Financial Officer
Bill RudolphsenChief Risk Officer
Sona ChawlaSenior VP of E-commerce
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8© Copyright 2008 Walgreen Co.
Senior Management Additions
Wade MiquelonChief Financial Officer
Bill RudolphsenChief Risk Officer
Sona ChawlaSenior VP of E-commerce
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9© Copyright 2008 Walgreen Co.
Senior Management Additions
Wade MiquelonChief Financial Officer
Bill RudolphsenChief Risk Officer
Sona ChawlaSenior VP of E-commerce
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10© Copyright 2008 Walgreen Co.
Third Quarter FinancialsPercentage ChangeThree Months Ended
Prescription Sales 8.9% 13.8% 13.5%
May 31, 2008 May 31, 2007 May 31, 2006
Net Sales 9.6% 12.5% 12.4%
Net Earnings 2.0% 19.6% 14.2%
Comparable Drugstore Sales 3.4% 7.8% 7.6%
Comparable Front-End Sales 4.6% 5.6% 4.6%
Comparable Prescription Sales 2.7% 9.0% 9.3%
Comparable Prescriptions (Units) 1.1% 5.4% 4.0%
Selling, General and Administrative Expenses
Gross Margin
21.6%
27.5%
Percent to SalesThree Months Ended
22.1%22.1%
28.3%28.2%
May 31, 2006May 31, 2007May 31, 2008
*Fiscal 2008 third quarter includes a LIFO provision of $16.1 million versus a $3.5 million credit in the previous year.
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11© Copyright 2008 Walgreen Co.
Additional Financial Information
• Q3 tax rate of 37.3% in 2008 vs. 35.2% in 2007 • Anticipated tax rate of 37.1% for FY2008• Accounts receivable increased 19.5%, driven
primarily by the inclusion of OptionCare• Inventories increased 9.4%, slower than sales • Total short-term debt of $1.1 billion• Cash flow from operations totaled $2.5 billion YTD
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12© Copyright 2008 Walgreen Co.
Current Environment
• Excellent sales efforts and expense management
• Increased promotional activity• Our competitors have a pharmacy department,
Walgreens is a pharmacy• Low-cost pharmacy provider• Strong momentum toward e-prescribing
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13© Copyright 2008 Walgreen Co.
• Walgreens offers discounts on more than 5,000 drugs, including a 90-day supply of more than 400 generics for only $12.99
• Encourages patients to have allof their prescriptions filled at Walgreens
• Allows our pharmacists to screen more completely for dangerous drug interactions
Prescription Savings Club
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14© Copyright 2008 Walgreen Co.
Specialty Pharmacy is a Natural Extension
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15© Copyright 2008 Walgreen Co.
Prime Doubled Our Access to the Blues
Questions and Answers
Prime Therapeutics BCBS ClientsPrime Therapeutics BCBS ClientsExisting BCBS ClientsExisting BCBS Clients
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16© Copyright 2008 Walgreen Co.
Health and Wellness Division: Adding New Points of Care
Worksite ClinicsWorksite Clinics
Take Care Health ClinicsTake Care Health Clinics13
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17© Copyright 2008 Walgreen Co.
Integrated, Cost-effective Solutions
Take Take CareCareSMSM
Health ClinicsHealth Clinics
WorksiteWorksiteClinicsClinics
Home CareHome Care
Medical CampusesMedical Campuses
Mail ServiceMail Service
Specialty PharmacySpecialty Pharmacy
Retail StoresRetail Stores
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18© Copyright 2008 Walgreen Co.
• Customers turn to Walgreens for value and convenience
• As the market leader in retail pharmacy we have tremendous assets to:
• Broaden access through expanded footprints• Leverage the box to drive top and bottom line
productivity• Expand into adjacent health care services to
strengthen the core• Right growth initiatives to enhance shareholder
value
The Right Strategies for Growth
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19© Copyright 2008 Walgreen Co.
Questions and Answers
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20© Copyright 2008 Walgreen Co. 17
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21© Copyright 2008 Walgreen Co.
Appendix
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22© Copyright 2008 Walgreen Co.
Calculation of Adjusted SG&A
4Q04 4Q05 4Q06
SGA$ under GAAP $ 2,102.1 $ 2,434.9 $ 2,732.4
Less: Katrina Expense $ - $ 54.7 $ -
Adjusted SGA$ $ 2,102.1 $ 2,380.2 $ 2,732.4
Adjusted YOY % Increase 13.2% 14.8%
($s in millions)
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23© Copyright 2008 Walgreen Co. 20