First Quarter 2009 Conference Call


                                December 22, 2008




© Copyright 2008 Walgreen Co.
First Quarter 2009 Agenda

         Introduction/Safe Harbor   Rick Hans
                                    Divisional VP...
Safe Harbor

         Certain statements and projections of future results
         made in this presentation constitute f...
1Q09 Highlights
                                  Greg Wasson
                                 President & COO




© Copyr...
First Quarter Highlights

   Reducing new store openings to 2.5% - 3.0% by FY11
      – Lowers capital expenditures by an ...
Outperforming the Industry in Rx Growth

                                         WAG Script Growth vs. Industry
12.0%



...
Strategic Initiatives Update:
  Leverage and Enhance Our Core Business

                                                  ...
Slowing New Store Openings
                   Forecasted Change in
                                                       ...
Enhancing the Customer Experience

         Ensuring the most relevant customer shopping experience
            – Efficien...
POWER: Transforming Community Pharmacy

         Allows pharmacists to
         strengthen their role as
         trusted ...
Expanding Health & Wellness: Every Service
  Relates to the Core
                                    Community Pharmacy


...
1Q09 Financial Review
                                     Wade Miquelon

                                   Senior VP and...
First Quarter Highlights
                                            Percentage Change
                                   ...
Gross Profit

          Gross profit dollars increased 5.9% to $4.2 billion

          Gross margin of 27.8% in 1Q09 versu...
Controlling SG&A                                                   SG&A Growth Driven By:
                                ...
Percent Increase in SG&A Dollars:
 Two-Year Stacked

                   28.0%
 30%
                                       ...
Financial Details

Tax Rate – 37.6% in 1Q09 versus 37.4% in 1Q08

Net Interest Expense – $15 million due to issuance of lo...
Targeting $1 Billion in Annual Cost Reduction

                                         Opportunity                Targete...
Percent of $1 Billion Savings Anticipated by Year


                                   FY09           FY10          FY11
 ...
Positioned for Future Growth

                    Goal: Return to Strong Double-Digit EPS Growth
25%

                    ...
Questions and Answers




© Copyright 2008 Walgreen Co.
                                         21
© Copyright 2008 Walgreen Co.
                                22
Appendix

© Copyright 2008 Walgreen Co.
                                    23
Calculation of Adjusted SG&A:
 Hurricane Katrina
                                            Dollars in Millions
         ...
Calculation of Adjusted SG&A:
 Vacation Accrual Credit
                                                 Dollars in Million...
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Walgreen Co. First Quarter 2009 Earnings Conference

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Walgreen Co. First Quarter 2009 Earnings Conference

  1. 1. First Quarter 2009 Conference Call December 22, 2008 © Copyright 2008 Walgreen Co.
  2. 2. First Quarter 2009 Agenda Introduction/Safe Harbor Rick Hans Divisional VP - IR & Finance 1Q09 Highlights Greg Wasson President & COO 1Q09 Financial Review Wade Miquelon Senior Vice President & CFO Summary Greg Wasson President & COO Questions & Answers All © Copyright 2008 Walgreen Co. 2
  3. 3. Safe Harbor 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. © Copyright 2008 Walgreen Co. 3
  4. 4. 1Q09 Highlights Greg Wasson President & COO © Copyright 2008 Walgreen Co. 4
  5. 5. First Quarter Highlights Reducing new store openings to 2.5% - 3.0% by FY11 – Lowers capital expenditures by an additional $500 million Sales up 6.6% to $14.9 billion Net earnings of $408 million versus $456 million a year ago Adjusted comparable prescriptions up 1.5% © Copyright 2008 Walgreen Co. 5
  6. 6. Outperforming the Industry in Rx Growth WAG Script Growth vs. Industry 12.0% 8.0% 4.0% 0.0% -4.0% 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 WAG Total Retail Script Growth IMS w/o WAG © Copyright 2008 Walgreen Co. 6
  7. 7. Strategic Initiatives Update: Leverage and Enhance Our Core Business Slowing store growth Re-inventing the Leverage the Enhance customer experience best store the network in customer Transforming community pharmacy America experience Expanding health & wellness Expanding specialty pharmacy Broadening & deepening payor relationships Major cost reduction and productivity gain Rewiring for growth © Copyright 2008 Walgreen Co. 7
  8. 8. Slowing New Store Openings Forecasted Change in Supports customer-centric New Stores Openings 10.0% retailing initiatives – Refreshing existing stores 9.0% and optimizing assortment 8.0% Increases flexibility to invest 7.0% opportunistically 6.0% – Prescription file buys, expansion of retail and 5.0% worksite clinics 4.0% Saves an additional $500 3.0% million over the next three 2.0% years 1.0% Drives greater value creation 0.0% by enhancing the best 2008 2009E 2010E 2011E community-based store network Historic Jul-08 Current Range © Copyright 2008 Walgreen Co. 8
  9. 9. Enhancing the Customer Experience Ensuring the most relevant customer shopping experience – Efficient assortment – Efficient promotion – Refreshing existing stores Providing value to our consumers through new programs – “Affordable Essentials” – Prescription Savings Club – Private brand Strong online momentum – November traffic on walgreens.com up 45% Testing and evaluating new store formats © Copyright 2008 Walgreen Co. 9
  10. 10. POWER: Transforming Community Pharmacy Allows pharmacists to strengthen their role as trusted clinicians Reduces overall pharmacy costs Increases the breadth and depth of pharmacy services Fully implemented in 280 Florida stores In all Florida stores by fiscal year end, more than 10% of all drugstores © Copyright 2008 Walgreen Co. 10
  11. 11. Expanding Health & Wellness: Every Service Relates to the Core Community Pharmacy Home Infusion Online Take Care Medical On-Site Retail/Worksite Pharmacy ClinicsSM Institutional Specialty Pharmacy Pharmacy Pharmacy Mail Order Pharmacy Benefit Solutions © Copyright 2008 Walgreen Co. 11
  12. 12. 1Q09 Financial Review Wade Miquelon Senior VP and CFO © Copyright 2008 Walgreen Co. 12
  13. 13. First Quarter Highlights Percentage Change Three Months Ended Nov. 30 2008 2007 Net Sales 6.6% 10.4% Net Earnings -10.4% 5.5% EPS (Diluted) $0.41 $0.46 Prescription Sales 6.2% 11.1% Total Prescription (Units) 3.5% 7.2% Comparable Drugstore Sales 1.7% 5.4% Front-End Sales 0.0% 4.6% Prescription Sales 2.6% 5.9% Prescriptions (Units) -0.1% 3.7% Adjusted Prescriptions (Units) 1.5% © Copyright 2008 Walgreen Co. 13
  14. 14. Gross Profit Gross profit dollars increased 5.9% to $4.2 billion Gross margin of 27.8% in 1Q09 versus 28.0% 1Q08 Gross margin impacted by: – Non-retail businesses – Higher provision for LIFO – Partially offset by higher retail pharmacy margins © Copyright 2008 Walgreen Co. 14
  15. 15. Controlling SG&A SG&A Growth Driven By: Record new store openings Year-Over-Year % Increase Continued expansion of retail health 25.0% clinics One-time Rewiring for Growth costs 20.0% Gross Profit 15.0% SG&A 10.0% 5.0% 0.0% 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 Note: SG&A data adjusted for Hurricane Katrina in 4Q05 and vacation accrual credit in 4Q08 Source: Company Data © Copyright 2008 Walgreen Co. 15
  16. 16. Percent Increase in SG&A Dollars: Two-Year Stacked 28.0% 30% 25.5% 24.9% 23.3% * 25% 19.1% 20% 15% 10% 5% 0% 1Q07 + 1Q08 2Q07 + 2Q08 3Q07 + 3Q08 4Q07 + 4Q08 1Q08 + 1Q09 * Adjusted for vacation accrual credit in 4Q08 © Copyright 2008 Walgreen Co. 16
  17. 17. Financial Details Tax Rate – 37.6% in 1Q09 versus 37.4% in 1Q08 Net Interest Expense – $15 million due to issuance of long term debt LIFO – Provision of $43 million in 1Q09 versus $27 million in 1Q08 Capital Expenditures – $638 million during the quarter and $1.8 billion planned for fiscal year 2009 Balance Sheet Accounts receivable up 23.6%, primarily driven by reimbursement timing and non-retail sales Inventories increased 9.9% due to new stores and seasonal effect Net debt of $1.5 billion © Copyright 2008 Walgreen Co. 17
  18. 18. Targeting $1 Billion in Annual Cost Reduction Opportunity Targeted Areas Description FY11 Benefit Standardize specifications, Strategic Sourcing 25% enforce compliance, and of Indirect Spend leverage scale Zero base and focus on “must have” or “differentiating” work Corporate Overhead Lower complexity from efficient 50% and Store Labor assortment, product flows, and policies Improve service levels, foster customer loyalty and reduce POWER / Workload costs 25% Balancing Free up time for pharmacists to offer new clinical services Total: $1B © Copyright 2008 Walgreen Co. 18
  19. 19. Percent of $1 Billion Savings Anticipated by Year FY09 FY10 FY11 Net Benefit After One 0% 50% 100% Time Costs One-Time $300 - $400 Million None Costs over two years Additional Operational and Working Capital Benefits $500 million reduction in working capital from category management initiatives Better customer satisfaction © Copyright 2008 Walgreen Co. 19
  20. 20. Positioned for Future Growth Goal: Return to Strong Double-Digit EPS Growth 25% EPS Growth 20% 15% al 10% Go 5% 0% 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 © Copyright 2008 Walgreen Co. 20
  21. 21. Questions and Answers © Copyright 2008 Walgreen Co. 21
  22. 22. © Copyright 2008 Walgreen Co. 22
  23. 23. Appendix © Copyright 2008 Walgreen Co. 23
  24. 24. Calculation of Adjusted SG&A: Hurricane Katrina Dollars in Millions 4Q04 4Q05 4Q06 SGA under GAAP $ 2,086 $ 2,435 $ 2,732 Less: Katrina Expense $ - $ 55 $ - Adjusted SGA $ 2,086 $ 2,380 $ 2,732 Adjusted YOY % Increase 14.1% 14.8% © Copyright 2008 Walgreen Co. 24
  25. 25. Calculation of Adjusted SG&A: Vacation Accrual Credit Dollars in Millions 4Q07 4Q08 SGA under GAAP $ 3,152 $ 3,324 Plus: Vacation Accrual Credit $ - $ 79 Adjusted SGA $ 3,152 $ 3,403 Adjusted YOY % Increase 8.0% © Copyright 2008 Walgreen Co. 25
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