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Walgreen shareholders get good news, conservative outlook

by Deb Weinstein
Jan 14, 2009

On a day plummeting temperatures kept many away, the almost 1,500 people who trekked to Navy Pier for Walgreen Co.’s annual shareholders meeting were met with a mixed message: business is good, but for Walgreen, it's not good enough.

Calling the results for 2008 “Un-Walgreen-like”, Chairman and acting CEO Alan G. McNally said the company's reduced earnings growth was “a very disappointing change.” The 6,600-store chain earned $2.16 billion in the year ended Aug. 31, 2008, up 5.7 percent over the prior year.

President and Chief Operating Officer Greg Wasson added: “This has been a very difficult year. One which we’re not happy with and certainly one I know [the shareholders ] are not happy with.”

And then came positive news:  December sales rose almost 11 percent to $6.1 billion, prescriptions began to rebound, per-visit purchases are up, and the company is poised to increase its presence in the healthcare business.

“People today are spending money on needs and not wants and that’s why we believe Walgreens is extremely well positioned to meet these basic needs, especially in this tough economic period,” Wasson said.

In addition to focusing on products that speak to health and wellness and scaling back on “non-essentials,” Walgreen seeks to capitalize on the popularity of its in-store Minute Clinics, positioning them as reasonable options for care that the uninsured currently seek in emergency rooms for non-emergency matters.

Wasson said that the success of Minute Clinics are just the beginning. “Last year we filled 1.1 million flu shots. What’s significant about that: we are fast becoming a major provider of immunizations and vaccinations which is a $6 billion industry and growing rapidly.”

Walgreen is known for its rapid pace of new-store construction, but Chief Financial Officer Wade Miquelon said the company has decided to slow its growth in favor of liquidity and to invest funds selectively in projects deemed especially promising. Miquelon also noted that newly-opened Walgreen stores turn profitable between years two and three, and the company will continue to seek out the best locations for its operations.

Mark Wagner, senior vice president of operations, added in a press conference after the meeting that the current real estate downturn has presented the company with expansion opportunities “we never would have dreamed of,” providing openings in regions including the Northeast and Southern California.

Executives also said it is on target for turning Walgreen into a one-stop-resource for care through its Take Care Health Systems subsidiary, part of its newly-rolled out Complete Care Program. The Take Care locations include services such as nutritional counseling along with primary care and pharmacy services. The location shown at the meeting also featured an exercise room.

Executives also said the company's recently-announced decision to cut 1,000 upper-level jobs was difficult, but one that will enable the company to save $1 billion by 2011.

Along with cutting staff, the company is determined to become even more local. Wagner said at the press conference that senior vice presidents will no longer direct from Deerfield. Instead, the company is dividing the country into 29 regions, with a vice president living in and overseeing each of them.

Wesson called it moving executives “closer to the ground, closer to the field,” adding that this magnified view of their markets will help “accelerate the integration of Walgreen services.”

Two shareholders proposals gained the support of more than a quarter of the votes cast:  that the chairman of the board should not be an officer of the company, and that shareholders be given an opportunity to approve executive compensation.

Walgreen stock closed at $26.14, up 26 cents.