This summary is based on the first quarter fiscal 2008 earnings call conducted by Walgreen Company (WAG: chart) on December 21, 2007.
Management:
Director, Finance: Rick Hans
Chairman, CEO: Jeffrey A. Rein
President, COO: Gregory D. Wasson
Sr. Vice President, CFO: William M. Rudolphsen
Vice President, Treasurer: John W. Spina
Key Investors Issues
- EPS were 46 cents a share compared to 43 cents a share last year.
- Net income was $455.5 million compared to $431.7 million a year earlier.
- Sales rose 10.4% to $14.03 billion.
First Quarter Highlights
Net earnings were up 5.5% to $456 million or 46 cents per share, from $432 million or 43 cents per share in the same quarter a year ago.
- Sales increased 10.4% to $14.0 billion.
- Total sales in comparable stores were up 5.4%, while front-end comparable drugstore sales rose 4.6%.
- Prescription sales, which accounted for 66.1% of sales, climbed 11.1%.
- Prescription sales in comparable stores rose 5.9%, while the number of prescriptions filled in comparable stores increased 3.7%.
- Third party plans account for 95.1% of all prescription sales.
The company faced a tough comparison with the year-ago quarter’s 24.9% earnings increase, which resulted in part from the introductions of blockbuster generic versions of name brand drugs Zocor and Zoloft, and an influx of pharmacy patients after last year’s introduction of the Medicare Part D drug benefit.
To counter last year’s strong increase in gross profit dollars generated by generic introductions, the company focused on aggressively managing expenses, including store salaries.
Selling, general and administrative expense dollars increased 9.5% over last year’s first quarter, less than the 10.4% sales increase.
Gross profit dollars increased 9.3%, slower than the year-ago quarter’s 19.1% increase that was aided by generic drug introductions.
- SG&A expenses as a percent to sales decreased 19 basis points versus the year-ago quarter to 22.66, primarily helped by lower legal, insurance and store closing costs.
- Gross profit margins dropped 29 basis points to 27.85. Lower-priced generic drugs helped increase pharmacy gross profit margins, but that benefit was offset by an overall shift toward the pharmacy business, which carries lower margins than front-end merchandise. Margins on the front end decreased as a result of a shift in mix toward lower margin items.
Walgreens opened 169 new stores compared to 143 store openings in the year-ago quarter, for a net increase of 142 stores after relocations and closings.
Walgreens operated 6,139 stores in 49 states and Puerto Rico, including 76 Happy Harry’s stores in Delaware and surrounding states.
- Walgreens has increased its store count by more than 1,500 since the end of fiscal 2004 and during that same time has seen its share of the retail prescription market increase from 14% to more than 17% today.
- In front-end sales, Walgreens increased its market share during the most recently reported 52-week period in 59 of its top 60 product categories compared to food, drug and mass merchandise competitors.
- The company is expanding its Take Care Health Clinics, which are walk-in health care centers staffed by nationally certified and state licensed nurse practitioners and physician assistants who treat patients 18 months and older for common illnesses. Take Care Health Systems, a wholly owned subsidiary of Walgreens, manages 119 convenient care clinics inside Walgreens stores in 15 cities across 11 states.
Fiscal 2008 Outlook
- The company has a goal for capital investments to reach an average ROIC of more than 15%. This goal includes strategic growth initiatives such as organic and acquired store growth, new alliances and other ventures and acquisitions that might be considered.
- The company anticipates a tax-rate of about 37.2% for the fiscal year.
- The company plans to open 550 new stores, for a net increase after relocations and closings of more than 475 stores.
- More than 400 Take Care Health Clinics are expected to be in operation by the end of calendar 2008.
