Key questions and answers from the fourth quarter earnings call conducted by Walgreen Co. (WAG) on September 29, 2008.
Andrew Wolf (BB&T Capital Markets):
Comment on your promotional activity during the quarter?
Jeff Rein: We drove too many promotions to get folks into our stores. We want to be more targeted, we want to create value and we want to make sure from the customers point of view it’s a value.
Typically when people come in they buy the coupon items, they buy the promotional items and then the market basket typically goes up in a good way, in terms of profitability because they are buying extra items. That did not really happen this time.
Wade Miquelon: You are probably looking in the range of 1 cent to 2 cents per share in terms of heavier promotional activity versus what would have seemed to get for it.
Andrew Wolf (BB&T Capital Markets):
On the million members that you have in the Prescription Savings Club, what kind of multiple of that are in your plans?
Greg Wasson: I do think there’s tremendous up side. There are 40 million uninsured Americans out there so we have got a long way to go now that we have a million.
As far as new patients, what we are really excited about is we just kicked off that marketing campaign on August 1, which was targeted to bring in new patients. We are seeing nearly 25% to 30% of the patients coming in since are new patients to Walgreen’s and we think that will continue to grow.
Robert Willoughby (Banc of America):
The healthcare strategy seems more dependent on acquisitions. Are you finding enough attractively priced platforms big enough to make a difference in the consolidated company’s numbers?
Jeff Rein: There are more opportunities. Healthcare is evolving very, very quickly right now. It is consolidating a bit so there are more opportunities.
We typically don’t comment on current and future acquisitions but I can tell you by putting all of this together we are becoming the affordable low cost accessible provider whether it’s the Take Care Clinics, the On site clinics at employers, the hospital clinics, the Walgreen Stores themselves, all ties together once again to bring folks easy into the system and save them money.
John Heinbockel (Goldman Sachs):
What’s the update on where your consumer sits and are they still as cautious?
Jeff Rein: In terms of the consumer they are still being very cautious, they are very promotionally oriented, and they are looking for value all the time. They are still buying products obviously. It’s a good thing we are in a recession resistant type business. They still need their medication; they still need their toothpaste, toiletries and so on.
I think people are being cautious but actually for us that’s not so bad because the products we sell, once again, they need them on a daily basis or that the small things in life like $5 toys or $10 gifts that make people happy.
Usually what happens for Walgreen’s is a poor economy is actually better for us particularly around the seasonal events because people are trading down. Once again most of the products that we sell are not that expensive.
Greg Wasson: We are certainly seeing in this environment an up tick in private label sales which also helped us overcome some of the margin pressures and additional promotional pricing.
John Heinbockel (Goldman Sachs):
Have you guys rethought or will you rethink with your new marketing person the idea of a loyalty card and whether that can direct promotional dollars better or not?
Jeff Rein: That is one of the things under consideration. We believe over the years our best loyalty card has actually been our SITES. We have class A SITES, we have put a lot of money into being in the right location, the best location but a loyalty card may be in the cards.
John Heinbockel (Goldman Sachs):
Going forward you think that it’s highly likely we will see overall margins up and front end up because of your pull back in promotional spend?
Jeff Rein: It depends on the buy; we are being very careful on the inventory we’re putting into the stores. We grew inventory less than sales this time so if the sell through is pretty good then our margins will come out pretty good too, so it’s a little bit of a wildcard.
