Walgreen Company (WAG)
Q1 2009 Earnings Call Transcript
December 22, 2008 8:30 a.m. ET

Executives

Rick Hans - Divisional Vice President of Investor Relations and Finance
Gregory Wasson – President and Chief Operating Officer
Wade Miquelon - Senior Vice President and Chief Financial Officer

Analysts

Lisa Gill – JPMorgan
Mark Miller – William Blair & Company
Eric Bosshard – Cleveland Research Company
Nathan Rich – Citigroup
John Heinbockel – Goldman Sachs & Co.
Edward Kelly – Credit Suisse
Mark Wiltamuth – Morgan Stanley
Meredith Adler – Barclays Capital
Steven Halper – Thomas Weisel Partners
David Magee – SunTrust Robinson Humphrey
Bakley Smith – Jefferies & Company

Presentation

Operator

Please stand by, we are about to begin. Good day everyone and welcome to the Walgreen Company’s first quarter 2009 earnings conference call. As a reminder, today’s call is being recorded. And now, at this time I’d like to turn the conference over to Mr. Rick Hans, Divisional Vice President of Investor Relations and Finance. Please go ahead, sir.

Rick Hans

Thank you Melissa and good morning everyone. Welcome to our first quarter conference call. We’ll start today’s call with Greg Wasson, our President and Chief Operating Officer, discussing the quarter’s highlights and the progress we have made on our strategic initiatives. Wade Miquelon, Senior Vice President and Chief Financial Officer will provide details on the first quarter financial results before turning it back over to Greg. John Spina, our Vice President and Treasurer is also joining us on the call today. In addition, I’d like to introduce the newest member of our Investor Relations team, Lisa Mears (ph). Lisa just joined us this month as Manager of Investor Relations.

We have allowed plenty of time for your questions on the call today, but please limit yourself to one question and a follow up so that we can give an opportunity to as many investors as possible during our limited time. I’d like to point out that today’s call is being simulcast on our Investor Relations website located at investor.walgreens.com. After this call, the presentation will be archived on our website for 12 months.

Certain statements and projections of future results made in this presentation constitute forward-looking information that is based on current market, competitive and regulatory expectations that involve risk and uncertainty. Please see our latest Form 10-K for a discussion of factors as they relate to forward-looking statements. Now here’s Greg Wasson.

Gregory Wasson

Thank you Rick and good morning everyone. Let me begin by thanking everyone who came to Chicago for our Analyst Day in late October. We greatly appreciate your interest in Walgreens and enjoyed having the opportunity to meet you. We also appreciated the breadth of questions posed during the day and your comments and suggestions for our next Analyst Day. For any of you who missed our meeting the audio presentation and slides are archived on our website.

Before discussing the financial results and strategic initiatives we put in place during the first quarter, I would like to emphasize that the CEO search process has not slowed down the implementation of our strategic growth initiatives in any way. I can assure you we haven’t missed a beat. We are progressing rapidly on the key initiatives which drive our three strategies.

As our Board, Chair and Acting CEO, Alan McNally outlined at the Analyst Day meeting, the Board determined that the search process would consider both internal and external candidates and take about three-and-a-half to four plus months. At this point we would expect an announcement sometime in early 2009.

Now, to get started, today we announced that we are slowing our new store openings to 2.5% to 3% by fiscal 2011; this will reduce our CapEx by an additional $500 million. Both Wade and I will have more to say about this later. Net sales for the first quarter were a record $14.9 billion, up 6.6%. Comp sales rose 1.7%, net earnings were $408 million or $0.41 per share diluted compared to $456 million or $0.46 per share diluted a year ago. Our customer traffic strengthened as the quarter progressed, although basket ring was down as customers were buying essentials rather than discretionary items.

Comparable prescription sales rose 2.6% in the quarter, the number of prescriptions filled in comp stores was virtually flat compared with a year ago but on an adjusted 90 day versus 30-day basis it would have increased 150 basis points. For the quarter we filled 156 million prescriptions. Total retail prescriptions increased 3.7% over last year’s first quarter. That compares favorably to an industry-wide decline of 0.5% as reported by IMS, excluding Walgreens.

We’ve talked previously about some of the factors affecting prescription sales. Despite these near-term challenges we have seen benefits in December from a recent up tick in the flu and the later than usual Thanksgiving. We continue to gain prescription market share, we now fill 18% of all retail prescriptions in the country.

We’ve seen a big increase in a number of flu vaccines administered this season, delivering over 1.1 million shots which are more than twice what we did all last year. Special thanks to the hard work of our pharmacists and nurse practitioners who are successfully building this business.