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Earnings Calls: 
Walgreen Company Second Quarter Earnings Call
Author: Rozalina Destanova
123jump.com
Last Update: 3:37 PM EDT March 25 2008


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Walgreen announced a deal with a pharmacy benefits management company, Prime Therapeutics that expands its business as a provider of specialty pharmacy services. General merchandise sales improved, boosted by strong Valentine''s Day business, after weaker-than-expected Christmas results. Sales at stores open at least a year rose 4.7%, with prescription same-store sales up 5.2%.Walgreen announced plans to acquire I-trax Inc.


Investors Question and Answers

 
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Jeff Rein: What happened is in December people were shocked almost, not only with the stock market but with the housing crisis and scared of losing their job, so we did see a trend of down seasonal sales or slowing of seasonal sales. However, when you look at Valentine’s in particular in terms of seasons, it is one of those things as who is going to forget their sweetheart? We had phenomenal Valentine’s sales, it worked out well. Once again as people are looking for value and in terms of our advertising, it helped drive those sales.

Debora Weinswig (Citigroup): Would you say during the quarter that traffic improved?

Jeff Rein: It is about 50/50 in terms of traffic and then ticket.

Debora Weinswig (Citigroup): On the SG&A side is impressive in terms of what is happening at the store level. How are you optimizing labor now than you have in the past?

Jeff Rein: In the past, we did not follow the budget as well as we should have. We do have the district managers and store op vice presidents sitting down with the store manager and decide on a budget, what is appropriate for the front end and what is appropriate for the pharmacy. One of the things that got us in trouble last year is we did not follow those budgets as well as we should have. We do follow the budgets now and people track that. We look at it usually twice a week but no less than once a week and once again we make sure we follow the budget that is set up through the system and through people talking with each other.

Greg Wasson: We are looking at every store’s opening hours, looking at competition, looking at what makes sense for the store and getting laser focused on when the store should be open and how long it should be open.

Debora Weinswig (Citigroup): Are there any changes in processes or procedures or it is mainly kind of being budget focused and mindful hours?

Jeff Rein: It is attention to what the hours are needed to serve the people, not only in the pharmacy but out front. As we mentioned complaints have continued to trend down and many years ago for example, we would just cut 20 hours per store across the chain. It did not make sense, so if a guy or a gal was doing well, they still lost the 20 hours. What we are doing now once again is we are focusing on that budget and what is needed to serve our customers well.

Scott Mushkin (Banc of America Securities): Could you talk about the relation between Prime Therapeutics and the Blues?

Greg Wasson: The various groups come on board, Prime Therapeutics realized they wanted to put together a good specialty solution, they had realized that they did not want to outsource and chose us. I think for a lot of reasons, primarily because they valued our independence as a specialty pharmacy provider. They also realized that with Medmark we had a long standing relationship with respected Blues in Western Pennsylvania Highmark. The Blues groups that they work with, they are at will to make their own decision as to who they use and when. Because that they are affiliated and or have ownership within Prime Therapeutics they would be looking to utilize all the resources that Prime brings to them, that is the reason that Prime put together this solution. Many if not most will come to us and will use Tryethen over time. Our key will be to start off strong with the first one or two that come on board.

Scott Mushkin (Banc of America Securities): How the integration of all the separate business is going?

Stan Blaylock: When you look at the overall spending amount there are 20 million sort of underlying medical lives when you look at the Blues plans that our investors in the Prime and Prime Therapeutics so the opportunity is both on the pharmacy benefits side and the medical benefits side so it is a tremendous amount of spending. We are not commenting on the value of the contract as we indicated in the release. As it relates to our systems aspect, this will be run on our current platform, our script operating system so we have invested significantly in that system and have already rolled that out to our multiple facilities. From a systems integration perspective we are already there in terms of being able to handle it. We will be coordinating that tightly with Prime who is going to be handling some of the front end functionality as it relates to things like eligibility and prior authorization and some of the clinical oversight.

Scott Mushkin (Banc of America Securities): You signed a DHL contract. How does that work exactly?

Jeff Rein: There is a volume break in packages per store. We would not give out those figures at this point, but what of the things it does do is get people into Walgreens on a timely basis when they need to mail their packages. They pick up other supplies; they do impulse purchasing and things of that nature. DHL is helping us spread the word that Walgreens Stores have this. We think it is one more way to leverage the box and take advantage of what is going on. It ties well into our digital and home office services; it is just a furthering of how we can serve our customers as we need to serve them.

Scott Mushkin (Banc of America Securities): There is a packages per store breakeven point, is that correct?

Jeff Rein: There is and we do have that.

Scott Mushkin (Banc of America Securities): How that is going so far?

Jeff Rein: It is going well in the areas that we piloted. It has been extremely good. There is a lot of small business owners, a lot of entrepreneurs, a lot of people that do not want to wait in lines at the post office or the post office is too far from them. With over 6,200 stores across America we are convenient for people to send their package whenever they want to.

Eric Bosshard (Cleveland Research Company): How did the Blues go their own independent ways previously to get their specialty needs dealt with?

Greg Wasson: Some of them used a previous provider from Prime and then others may have used their own specialty providers, gone their independent route. This is Prime’s intent to put together Prime’s quality solution with Medmark to be able to go to the Blues and offer them a complete package.
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