Download - Walgreen Co. Fourth Quarter 2008 Earnings
Fourth Quarter 2008 Conference CallSeptember 29, 2008
© Copyright 2008 Walgreen Co.
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• Introduction/ Safe Harbor Rick HansDivisional VP - IR & Finance
• Q4 & Fiscal Year Highlights Jeff ReinChairman, CEO
• Q4 & Fiscal Year Financials Wade MiquelonCFO
• Growth Strategy Update Greg WassonPresident, COO
• Summary Jeff Rein
• Questions & Answers All
Fourth Quarter 2008 Agenda
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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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Q4 & Fiscal Year Highlights
Jeff Rein
• 34th consecutive year of record sales and earnings – A record matched by only one other
Fortune 500 company• Sales increased 9.8% to $59.0 billion • Net earnings grew 5.7% to $2.2 billion• EPS reached $2.17 on a fully diluted basis
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Another Record Year
• Sales increased 8.8% to $14.6 billion • Net earnings grew 11.7% to $443 million• EPS reached $0.45 on a fully diluted basis
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Fourth Quarter Highlights
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-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Q4-08
WAG Total Retail Script Growth IMS w/o WAG
Source: IMS Data
WAG Script Growth Vs. Industry
Consistently Beating The Industry
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Moderated our organic growth plan for retail store expansion to provide more operational and financial flexibilityAcquired worksite health centers to expand our points of care beyond Take Care ClinicsImplemented disciplined and sustainable SGA expense control• Initiated corporate-wide program to reduce costs
Expanded our leadership team with new talent
FY 2008 Initiatives
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Q4 & Fiscal Year Financial Review
Wade Miquelon
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Fourth Quarter FinancialsPercentage ChangeThree Months Ended
August 31, 2008 August 31, 2007 August 31, 2006
Net Sales 8.8% 10.3% 16.0%
Net Earnings 11.7% -3.8% 25.3%
Comparable Drugstore Sales 2.6% 6.3% 9.7%
Comparable Front-End Sales 3.7% 6.1% 5.2%
Prescription Sales 7.9% 10.5% 18.0%
Comparable Prescription Sales 2.0% 6.5% 12.3%
Comparable Prescriptions (Units) -0.1% 4.0% 7.1%
Percent to SalesThree Months Ended
August 31, 2008 August 31, 2007 August 31, 2006
Gross Margin 27.6% 28.0% 27.6%
Selling, General and Administrative Expenses
22.8% 23.5% 22.5%
10*Fiscal 2008 fourth quarter includes a LIFO provision of $24.9 million versus a $32.0 million provision in the previous year.
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0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08
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
Without the vacation accrual credit, SG&A expenses would have increased 8.0 percent
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27.5%25.3% 24.7%
23.3% *
0%
5%
10%
15%
20%
25%
30%
Q107 + Q108 Q207 + Q208 Q307 + Q308 Q407 + Q408
* Without the vacation accrual credit, SG&A expenses would have increased 8.0 percent in Q408
Percent Increase in SG&A Dollars:Two-Year Stacked
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28.9% 27.6%
23.3% *
0%
5%
10%
15%
20%
25%
30%
Q405 + Q406 Q406 + Q407 Q407 + Q408
* Without the vacation accrual credit, SG&A expenses would have increased 8.0 percent in Q408
Percent Increase in SG&A Dollars:Two-Year Stacked
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Gross Profit Margin
• Gross profit increased 7.4% to just over $4.0 billion
• Margins were hurt by increased promotional activity and non-retail businesses, including specialty pharmacy
• Generics and private brand products positively affected gross profit margin
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Financial Takeaways
Tax Rate• Q408 of 37.0% vs. 35.0% in Q407Working Capital• Accounts receivable up 13.0%, driven by third-party sales and slower
Medicaid payments• Inventories increased 6.8%, slower than sales• Accounts payable up 14.9%, due primarily to the timing of paymentsBalance Sheet • Q408 net debt of $977 million vs $651 million in Q407CapEx• $2.2 billion in FY 2008• Lower in FY 2009 with slower organic growth
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0
100
200
300
400
500
600
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E
Net New Stores
Slowing Organic Net New Store Growth
Challenges Present Opportunities
• Relentless cost control• Focus on driving strategy• Robust financial structure
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Growth Strategy UpdateGreg Wasson
Hurricane Ike
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Broadening access to our products and services
Reinventing the shopping experience around the customer
Expanding into related health care services
Efficient systems and processes
The Right Strategies for Growth
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Integrated, Cost-Effective Solutions
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Take Take CareCareSMSM
Health ClinicsHealth Clinics
WorksiteWorksiteClinicsClinics
Home CareHome Care
Medical CampusesMedical Campuses
Specialty PharmacySpecialty Pharmacy
Retail StoresRetail Stores
Mail ServiceMail Service
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Broadening access to our products and services
Reinventing the shopping experience around the customer
Expanding into related health care services
Efficient systems and processes
The Right Strategies for Growth
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Prescription Savings Club> 1 million members• Offers more overall value than other
discount programs• Discounts on more than 5,000 drugs,
including a 90-day supply of more than 400 generics for less than a dollar a week
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Customer-Centric Initiatives
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Broadening access to our products and services
Reinventing the shopping experience around the customer
Expanding into related health care services
Efficient systems and processes
The Right Strategies for Growth
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Expanding Health Care Services
Take Care Consumer & Employer Solutions
• Providing routine health care at Walgreens drugstores and large employer worksites
• Nearly 600 health centers and clinics currently and growing to 800
Specialty Pharmacy• Largest independent provider• New Premera contract• Fastest growing segment of pharmacy
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Broadening access to our products and services
Reinventing the shopping experience around the customer
Expanding into related health care services
Efficient systems and processes
The Right Strategies for Growth
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Concluding Comments
Jeff Rein
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Questions and Answers
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Appendix
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Calculation of Adjusted SG&A
4Q04 4Q05 4Q06
SGA$ under GAAP $ 2,086.4 $ 2,434.9 $ 2,732.4
Less: Katrina Expense $ - $ 54.7 $ -
Adjusted SGA$ $ 2,086.4 $ 2,380.2 $ 2,732.4
Adjusted YOY % Increase 14.1% 14.8%
($s in millions)