This summary is based on the second quarter fiscal 2009 earnings call conducted by Walgreen Company (WAG) on March 23, 2009.
Management:
President and CEO: Greg Wasson
SVP and CFO: Wade Miquelon
Divisional VP of IR and Finance: Rick Hans
Key Investor Issues:
- Q2 prescription sales accounted for 63% of quarterly sales.
- The management successfully issued a $1 billion, 5.25% 10-year bond offering.
- The company increased its Prescription Savings Club to 1.7 million members.
Second Quarter Financial Highlights:
Net sales for the quarter were a record $16.5 billion, up 7%.
- Comparable store sales, adjusted for calendar shifts and last year''s leap day, rose 2.1% in the quarter.
- The front-end comparable sales decreased 0.2% on an adjusted basis.
- Front-end comps or discretionary items were down in the second quarter, however offset by positive comps for nondiscretionary and other items.
- Adjusted for last year''s leap day, comparable store traffic was virtually flat in the quarter when compared with a year ago.
Net earnings were $640 million or 65 cents per share compared with $686 million or 69 cents per share a year ago.
- Last year''s earnings benefited from an extra day due to leap year.
- Earnings per share this quarter were reduced by a net 4 cents after costs and benefits for the Rewiring for Growth initiative.
The first half of fiscal 2009 the company opened/acquired 269 drugstores.
- This is 13 fewer openings than a year ago.
- The management advised that the significant impact from the slowdown in new store openings will hit later in fiscals 2010 and 2011.
- The company also opened 117 Take Care clinics in the first half of the year, including 41 in Q2.
The company announced second quarter changes in the senior management team.
- Randy Lewis, who is in charge of Logistics and Distribution, is now the Senior Vice President for Supply Chain Management.
- This is a pipeline with tremendous opportunity for inventory and cost reduction.
- George Riedl is now leading the ongoing rollout of the new POWER pharmacy program.
- George will also continue to manage pharmaceutical purchasing.
- Bryan Pugh is now leading the merchandising divisions for all front-end categories in addition to developing new store formats.
- Tom Connolly took over leadership of the facility division.
- Tom is replacing Bill Shiel, who retired after 38 years with the company.
- In addition to securing the best store sites in America, Tom will take more of a portfolio management approach towards growing organic store growth rate.
- Historically that growth rate was in the 8% range and even reached 9% in fiscal 2008.
- The company is now stepping down that rate to between 2.5% and 3% by 2011.
Industry consolidations continue and the company’s financial flexibility allows the management to take advantage of these opportunities when they make sense.
- In the previous week, the management agreed to acquire prescription files from 11 Drug Fair pharmacies in New Jersey.
- This is along with 32 other Drug Fair locations to be purchased and operated.
- In February, the company agreed to acquire 12 Rite Aid locations in San Francisco and eastern Idaho.
New formats driven by CCR will be piloted in 35 stores by summer.
- These stores will represent various markets and demographics that the company gets a good read on results.
- Besides the new assortment of basic departments, these stores will include a lower store profile and new layouts designed around customer solutions.
- The management plans to fully convert several hundred stores to CCR before Halloween.
- After holding for the holiday sales period, the company plans to roll out CCR formats at the beginning of calendar 2010.
Over the past four quarters, the company has made dramatic improvements with selling, general and administrative costs.
- This has allowed the company to better leverage gross profit dollars.
- SG&A costs increased only 8.1% in the second quarter over the year ago period.
- The increase was only 5.7% when factoring out the net restructuring costs.
- Under the Rewiring for Growth program, 400 corporate and field management employees took advantage of voluntary separation program in January.
- Earlier in March, nearly 200 additional jobs where eliminated from corporate and field management staff.
- These moves put the company on target towards goals of eliminating 1,000 corporate and field positions by the end of August.
- This is forecast to contribute to $1 billion in annual cost savings in fiscal 2011.
The company expects to achieve cost savings, productivity gains and improved pharmacy patient experience through the rollout of POWER pharmacy.
- POWER moves the administrative tasks involved in filling prescriptions to the central facilities, enables store pharmacists to spend more time as the trusted clinician with patients.
- POWER also ties in closely with the slowing of organic store growth.
- With POWER’s added capacity, the management doesn’t have to open new stores as quickly to relieve high pharmacy volumes at existing stores.
- POWER has already been implemented in nearly 400 of approximately 780 Florida stores, with 19% of prescriptions being filled at the central facility.
- In addition, more than 30 Arizona stores are using key components of POWER.
In January, the management connected prescription drug offering, retail clinics and worksite health and wellness centers under one umbrella called complete care and well-being.
- The program provides large employers with affordable, accessible and high-quality care for their employees, dependents and retirees no matter where they work or live.
- On the retail clinic front, the company opened 41 Take Care clinics during the quarter and openings will continue this year.
- The management is also working to expand service offerings to patients.
- The company is reportedly piloting its Take Care clinics as administration sites for the injection and infusion of specialty drugs.
- In addition to building strong relationship with employers, the company is going direct to consumers with Prescription Savings Club.
- On the club, of the 1.7 million members, more than 30% of them are new to Walgreens.
