This summary is based on the second quarter fiscal 2008 earnings call conducted by Walgreen Company (WAG: chart) on March 24, 2008.

Management:

President: Greg Wasson
Chairman, CEO: Jeff Rein
Director of Finance: Rick Hans
CFO: Bill Rudolphsen
SVP, President Walgreen’s Health Services: Stan Blaylock
Treasurer: John Spina

Key Investors Issues

- EPS were 69 cents a share compared to 65 cents a share last year.
- Profit was $685.9 million, up from $651.9 million a year earlier.
- Sales rose 10.5% to $15.4 billion.

Second Quarter Highlights

Net earnings were up 5.2% to $686 million or 69 cents per share, from $652 million or 65 cents per share in the same quarter a year ago.

- This year’s results benefited from one extra day versus last year because of leap year.
- Prescription sales, which accounted for 62.8% of sales in the quarter, climbed 11.1%. Prescription sales in comparable stores rose 5.2%, while the number of prescriptions filled in comparable stores increased 3.6%. That compares to a 2.3% increase in total U.S. retail prescription volume during the same period, according to IMS Health.

Selling, general and administrative expense dollars increased 11% over the year-ago period – slower than the 14.3% increase in last year’s quarter.

- The improvement primarily resulted from a decrease in the rate of store salary growth, as well as lower legal and insurance expenses. Partially offsetting these improvements were higher non-payroll store level expenses.
- As a percent to sales, SG&A expenses increased 11 basis points versus the year-ago quarter to 21.75.
- The quarter’s expenses also were impacted by 121 new store openings, 41 more than during last year’s quarter.

Gross profit dollars increased 9.9%, slower than the year-ago quarter’s 16.7% increase that was aided by blockbuster generic drug introductions.

- Gross profit margins decreased 14 basis points versus the year-ago quarter to 28.82. Margins for the front-end decreased as a result of a shift in sales mix to lower margin items. Softer seasonal sales in December and digital photo promotions reduced front-end margins. An overall sales shift toward the pharmacy business, which carries lower margins than front-end merchandise, also had an impact. Pharmacy margins overall increased with the growth in generic drug sales.
- Walgreens LIFO inflation index remained unchanged from the first quarter. A year ago, the company lowered its LIFO inflation index in the second quarter by 50 basis points, resulting in a LIFO provision of $13.4 million last year versus a provision of $30.6 million in this year’s quarter.

Walgreens continued implementing its strategy of growth and extension of pharmacy services and with two moves in March.

The company announced it reached an agreement to be the exclusive specialty pharmacy provider for Prime Therapeutics. Under Prime’s program, Walgreens will serve the specialty pharmacy users among more than 20 million health plan members. Walgreens will provide service through Medmark, A Walgreens Specialty Pharmacy. Prime Therapeutics, based in St. Paul, Minn., is a pharmacy benefit manager (PBM) collectively owned by 10 Blue Cross Blue Shield Plans, subsidiaries or affiliates of those Plans.

Walgreens announced it was acquiring I-trax, Inc. and Whole Health Management, two leading providers of worksite health centers. With 146 Take Care Health Clinics, Walgreens will manage more than 500 retail clinics and health centers when the transactions close. These sites will allow large-company employees, health plan members and their dependents to seamlessly access quality, affordable and convenient health care at work or near their homes.

In addition to new store openings, Walgreens pursued store growth with its announced acquisition of 20 Farmacias El Amal drugstore locations in Puerto Rico, pharmacy file buyouts of 27 Rite Aid stores in the Las Vegas area and the buyouts of 43 other pharmacies around the country.

Walgreens operated 6,237 stores in 49 states and Puerto Rico. Walgreens plans to operate more than 7,000 stores in 2010 and sees long-term potential for approximately 13,000 stores in the U.S.

Year-to-Date Financial Highlihts

- Net earnings climbed 5.3% to $1.14 billion or $1.15 per share versus last year’s $1.08 billion or $1.07 per share. Sales increased 10.5% to $15.4 billion for the second quarter and 10.4% to $29.4 billion for the first half. Total sales in comparable stores were up 4.7%, while front-end comparable drugstore sales rose 4%.
- For the most recently reported 52-week period, ending Dec. 29, 2007, Walgreens increased its market share in 58 of its top 60 product categories compared to food, drug and mass merchandise competitors, as measured by A.C. Nielsen.
- Walgreens opened 290 new stores, compared to 223 in the comparable period a year ago, with a net gain of 240 stores after relocations and closings. Walgreens is on track to open 550 new drugstores this year, with a net increase of more than 475.

Key questions from the second quarter earnings call conducted by Walgreen Company on March 24, 2008.