This summary is based on the first quarter fiscal 2009 earnings call conducted by Walgreen Co. (WAG) on December 22, 2008.
Management:
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President and Chief Operating Officer: Greg Wasson
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Senior Vice President and Chief Financial Officer: Wade Miquelon
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Vice President and Treasurer: John Spina
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Divisional Vice President of Inventor Relations and Finance: Rick Hans
Key Investors Issues
- Sales were $14.9 billion, up 6.6% from $14 billion in 2007.
- Net earnings were $408 million or 41 cents per share, down 10.4%.
First Quarter Highlights
Net sales were $14.9 billion, up 6.6% from $14 billion in the prior year as comp sales rose 1.7%.
- Net earnings were $408 million or 41 cents per share, down 10.4% compared to $456 million or 46 cents per share a year ago despite customer traffic strengthening as customers were buying essentials rather than discretionary items.
- Comparable prescription sales rose 2.6%, the number of prescriptions filled in comp stores was virtually flat compared with a year ago but on an adjusted 90 versus 30 day basis we would have increased 150 basis points.
- Total retail prescriptions increased 3.7% over last years first quarter and compares favorably to an industry wide decline of 0.5% as reported by IMS, excluding Walgreens.
- The firm has seen a big increase in a number of flu vaccines administered this season, delivering over 1.1 million shots which are more than twice all of last year.
Gross profit of $4.2 billion, up 5.9% reflect a challenging business environment and gross margin was down 20 basis points as margin was negatively impacted by lower margins of a non-retail businesses and a higher LIFO provision.
- This was partially offset by a higher retail margin as a result of the impact of generic drug sales.
- SG&A expense increased 9.1% compared with an increase of 10% last year, due to 212 new stores opened, continue investment in retail healthcare clinics and some one time costs associated with rewiring for growth.
- Net interest expense was $15 million compared to zero last year due to the issuance of $1.3 billion in long term debt.
- The firm invested $638 million on additions to plant, property and equipment versus $490 million last year due largely to the addition of 212 new stores versus 166 last year.
Accounts receivable were up 23.6% and this was driven primarily by reimbursement timing, non-retail sales mix which has a higher normalized DSO and also the end of the quarter falling on a Sunday.
- Inventories grew by 9.9% driven primarily by record new store sales growth, slower comps and the effect of seasonal goods.
- Accounts payable increased 22.4% due primarily to timing of disbursement give the Sunday quarter end and the increase of inventories.
- Net debt was $1.5 billion reflecting short term borrowings of $1.1 billion, long term debt of $1.3 billion and offsets by cash and cash equivalents of $886 billion.
- Commercial Paper ratings of A1P1 and long term debt ratings of A+A2 give the firm the ability to drive strategies and do right things right at a time when many other corporations are struggling with liquidity.
Operational Highlights:
- The firm is slowing new store openings to 2.5% to 3% by fiscal 2011 and this will reduce CapEx by an additional $500 million.
- Moderating new store openings will support customer centric retailing initiative, increase flexibility to invest opportunistically, save an additional $500 million over the next three years over, and greater value creation.
- The firm is positioning the stores to take advantage of the new consumer reality for retailers which means customers are making more purchases using cash and timing those purchases closely to the beginning or the middle of the month.
- It now has more than 1.4 million Prescription Savings Club members an increase of more than 400,000 in just three months and more than 30% of the PSC members are new Walgreen patients.
It also had tremendous momentum in the online business which reported a 45% increase in traffic to Walgreens.com during the month of November.
- The POWER initiative is expected to transform community pharmacy and is currently being rolled out across Florida.
- The initiative focuses on eliminating a significant amount of administrative tasks from the community pharmacy which will free up pharmacists to play a greater role as trusted clinicians, and reduce overall pharmacy costs.
- By the end of the fiscal year, the firm intends to have implemented POWER in all Florida stores, that’s more than 760 locations and more than 10% of total drugstores.
- It opened four new worksites and 76 new retail clinics giving a total of 661 retail and worksite clinics nationwide and recently completed the acquisition of a specialty pharmacy business from McKesson Corporation.
Key questions and answers from the first quarter earnings call conducted by Walgreen Co. (WAG) on December 22, 2008.
Lisa Gill (JP Morgan):
Where are you taking customers from, are they coming from the other retailers, supermarkets, from Wal-Mart?
Greg Wasson: We don’t know truly where we’re taking them from. The opportunity of 46 million uninsured folks that didn’t have cash and maybe some folks that weren’t really taking medication or seeking compliance medication.
The two biggies that we’re seeing, we’re seeing 30% of the patients that are on the PSC card are new adds and we’re also seeing increased compliance once their on. The opportunity is huge for the 46 million out there that are uninsured.
Wade Miquelon: We can’t prove exactly where the share is coming from but we do know is we track, for instance, the $4 scripts, the generics that fall into that bucket that we have actually gained share in that now year on year after a year ago being tougher. It is a lot of the cash customers and again that’s the validation that it’s hitting those particular scripts.
