Sanford C. Bernstein 24th Annual Strategic Decisions
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Transcript of Sanford C. Bernstein 24th Annual Strategic Decisions
© Copyright 2008 Walgreen Co.
Sanford C. Bernstein24th Annual Strategic Decisions ConferenceJeff Rein, Chairman and Chief Executive Officer
May 28, 2008New York
Confidential
© Copyright 2008 Walgreen Co.2
Confidential
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 Form 10-K for a discussion of factors as they relate to forward-looking statements dated August 31, 2007.
2
© Copyright 2008 Walgreen Co.3
Confidential
The nation’s largest and fastest growing drugstore chainSolid track record: 33 years of record sales and earningsHighly respected brand and growing market shareHighest sales and earnings per square foot among peersStrong cost discipline and best in class executionFocused on driving sales and improving returns
Walgreens At a Glance
© Copyright 2008 Walgreen Co.4
Confidential
Best Corners In America
© Copyright 2008 Walgreen Co.5
Confidential
Growing Market Leadership
62
78230
486
6431
7
49
138
ID25
120
2
55
168
121
51
87
73221
106
3
1
48
131
53145
530
5774
197
115
139
228
87
596
79
201
200+
150-200
100-150
1-50
50-100
Number of stores
184
#1 in Market Share in 138 Major Markets
738
232
13321
72105
62
40
1Hawaii
Puerto Rico
816,204 Drugstore Locations*
Washington D.C. 1
*As of April 2008, Walgreens has 6,614 total locations, including worksite health centers, home care facilities and specialty, institutional and mail service pharmacies
© Copyright 2008 Walgreen Co.6
Confidential
Consistent Growth Record
$10
$20
$30
$40
$50
$60
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
2007 Net Sales $53.8 Billion
15% CAGR
In Billions
© Copyright 2008 Walgreen Co.7
Confidential
28.6%
17.8%13.1%
30.7%
9.8%
37.Inde
1%
6.5%
30.4%
15.3%10.6%
Chains w/o WAG
SupermarketsMass
pendents
WAG WAG
Independents
Chains w/o WAG
SupermarketsMass
2001 2006
Percent of Total Retail Pharmacies
55,581 Total Stores 56,948 Total Stores
Growing Market Coverage
Source: NACDS
© Copyright 2008 Walgreen Co.8
Confidential
$2,037$2,453
$2,738$2,988
$3,192
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
Year 1 Year 2 Year 3 Year 4 Year 5
57% improvement from year 1 to 5
Note: Data based on net new drugstores, excluding acquired stores and stores converting to or from 24-hour format. Class Year is calculated on a Calendar Year basis; includes only stores open at least 12 months as of 12/31/2007. See appendix for details.
Sales Improve as Stores MatureAverage Front-End Sales/Store by Class Year(000’s)
© Copyright 2008 Walgreen Co.9
Confidential
7.7%
6.9%
6.3%
5.6%
25.0%
39.0%
9.5%
Store Age
0-1
Year
s
1-2 Yea
rs
2-3 Years
3-4 Years4-5 Years
10 Years
5-10 Years
36% of stores are less than five years old
© Copyright 2008 Walgreen Co.10
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Improving ROIC
8.5%
9.0%
9.5%
10.0%
10.5%
11.0%
2003 2004 2005 2006 2007
Return on Invested Capital
9.6%9.7%
10.0% 10.0%
10.5%
Source of methodology: McKinsey & Company, Inc. & Copeland, T., et. al. (2000). Valuation: Measuring and Managing the Value of Companies. New York: Wiley. See appendix.
© Copyright 2008 Walgreen Co.11
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-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
Apr-07
May-07
Jun-07Ju
l-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
Jan-08
Feb-08
Mar-08
Apr-08
Walgreens CVS Rite Aid Longs
Total Same-Store Sales By Month
Outpacing Other Retail Pharmacies
Source: Company DataNote: CVS stopped releasing monthly data beginning Feb. 2008
© Copyright 2008 Walgreen Co.12
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3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
Sep-06
Oct-06
Nov-06
Dec-06
Jan-07
Feb-07
Mar-07
Apr-07
May-07
Jun-07Ju
l-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
Jan-08
Feb-08
Mar-08
Apr-08
WAG Total Retail Script Growth minus IMS w/o WAG
WAG Script Growth Spread Vs. Industry
Total Retail Script Growth Spread
Source: Company & IMS Data
Consistently Beating The Industry
© Copyright 2008 Walgreen Co.13
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$0
$10
$20
$30
$40
$50
$60
Food Chain w/oWAG
Wal-Mart WAG
* Source: Company Data
2007 EBIT per Selling Square Foot*
Outperforming Other Retailers
© Copyright 2008 Walgreen Co.14
Confidential
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08
Year-Over-Year % Increase
SG&A
Gross Profit
Disciplined Cost Management
Note: SG&A data adjusted for Hurricane Katrina
Source: Company Data
© Copyright 2008 Walgreen Co.15
Confidential
New Offerings Drive Customer Traffic
© Copyright 2008 Walgreen Co.16
Confidential
Growing Private Brand Business
© Copyright 2008 Walgreen Co.17
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• Benefit the patients• Benefit the payors• Benefit Walgreens• Have a significant impact
on year-over-year changes in prescription sales
• Increase gross profit dollars and the bottom line
Generic Conversions
© Copyright 2008 Walgreen Co.18
Confidential
• Walgreens Prescription Savings Club drives traffic and attracts new customers
• Walgreens offers discounts on more than 5,000 drugs, including a three month supply of more than 300 generics for only $12.99
• 10% rebate on Walgreen Brand products
Prescription Savings Club Card
400
© Copyright 2008 Walgreen Co.19
ConfidentialLeveraging Our Strong Brand to Establish…
© Copyright 2008 Walgreen Co.20
Confidential
Retail Sales
Health & Wellness
Medical Campus
Specialty Pharmacy
Store Pharmacy
Multiple Growth Platforms
© Copyright 2008 Walgreen Co.21
Confidential
• Total annual market potential today of $60 billion, expected to grow to $100 billion by 2010
• Average specialty drug spend > $6,000 per year
• Representing nearly one-quarter of total drug spending in the U.S. today
• Increase in FDA approvals of biotech medication
Specialty Pharmacy: A Large & Growing Market Opportunity
© Copyright 2008 Walgreen Co.22
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• #2 in home infusion, #4 in specialty pharmacy services
• Exclusive multi-year specialty pharmacy contract for 10 Blue Cross Blue Shield plans provides access to over 20 million members
• Opportunity to expand services beyond specialty pharmacy
• Independence is significant factor in winning new contracts
An Emerging Leader in Specialty Pharmacy
© Copyright 2008 Walgreen Co.23
ConfidentialExtending Our Growth in Health & Wellness
Take Care• In-store clinics treat routine
health care needs and minor ailments
• Patients can be seen quickly with no appointments necessary
• 163 Take Care locations will grow to 400 by year end 2008
• Platform for additional services
© Copyright 2008 Walgreen Co.24
ConfidentialWorksite Clinics: A Significant and Growing Market Opportunity
• 200-plus corporate clients
• 350 corporate campus locations
• Offering cost effective prescription drugs and health care services
• Market: 7,600 corporate campuses of 1,000 employees or more + families and retirees; potential $20 billion plus industry
© Copyright 2008 Walgreen Co.25
ConfidentialServing An Impressive Base of Corporations
© Copyright 2008 Walgreen Co.26
ConfidentialMedical Campuses: Serving the Patient at the Point of Care
© Copyright 2008 Walgreen Co.27
Confidential
• Aging population will drive growth for Rx and health care services
• Growing employer focus on promoting health and wellness to enhance productivity and reduce health care costs
• Increased provider focus on transparency
• Generic conversion cycle rising
$97
$268
$612
$887
$0
$250
$500
$750
$1,000
Under25
25-45 45-65 Over65
Drug Spend per Year
Older Americans Spend More
Additional Growth Drivers
Source: BLS
© Copyright 2008 Walgreen Co.28
Confidential
Retail and health care trends have created a more complex and competitive environment
As the market leader in retail pharmacy we have tremendous assets to:
• Broaden access through expanded footprints• Leverage the box to drive top and bottom line productivity• Expand into adjacent health care services to strengthen the core
Our goal:• 10,000 points of care by 2012• 8% annual square footage growth• 15% earnings CAGR• Significant value creation for shareholders
Walgreens Strategy
© Copyright 2008 Walgreen Co.29
Confidential
Questions & Answers
29
© Copyright 2008 Walgreen Co.
Sanford C. Bernstein24th Annual Strategic Decisions ConferenceJeff Rein, Chairman and Chief Executive Officer
May 28, 2008New York
Confidential
© Copyright 2008 Walgreen Co.31
Confidential
© Copyright 2007 Walgreen Co.
Calculation of Adjusted SG&A
4Q04 4Q05 4Q06
SGA$ under GAAP $ 2,102.1 $ 2,434.9 $ 2,732.4
Less: Katrina Expense $ - $ 54.7 $ -
Adjusted SGA$ $ 2,102.1 $ 2,380.2 $ 2,732.4
Adjusted YOY % Increase 13.2% 14.8%
($s in millions)
© Copyright 2008 Walgreen Co.32
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2003 2004 2005 2006 2007
NOPAT $1,465 $1,687 $1,938 $2,154 $2,514
Average Invested Capital
$15,221 $17,341 $19,412 $21,501 $23,896
ROIC* 9.6% 9.7% 10.0% 10.0% 10.5%NOPAT = Net Operating Profit After TaxROIC = Return on Average Invested Capital
*Source of methodology: McKinsey & Company, Inc. & Copeland, T., et. al. (2000). Valuation: Measuring and Managing the Value of Companies. New York: Wiley.
Source: Company Data
Improving ROIC
© Copyright 2008 Walgreen Co.33
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Acquisitions Help Drive Growth
2008:• I-Trax (CHD Meridian and ProFitness Solutions) – worksite healthcare clinics• Whole Health Management – worksite healthcare clinics2007:• Option Care - specialty pharmacy and home infusion services provider• Take Care Health Systems - a convenient care clinic provider• Familymeds Group (selected assets)• Senior Med (primarily prescription files)2006:• Medmark Specialty Pharmacy• Canadian Valley Medical Solutions (home care services)• Happy Harry’s2005:• Schraft’s Specialty Pharmacy• Home Pharmacy of CA• Selected assets from the 23-store Medic drugstore chain
© Copyright 2008 Walgreen Co.34
Confidential
Home Infusion ServicesAnti-infectives (antibiotics, antifungals, antivirals) Antiemetics Catheter Management Chemotherapy Deferoxamine for iron storage diseases
and iron toxicity Enteral Nutrition Heart Failure Hydration Immune Globulin Infliximab (Remicade®) Therapies for Paget's Disease and
diseases causing hypercalcemia Pain Management Respiratory IV and Inhaled Steroids
Total Parenteral Nutrition (TPN)
Specialty PharmacyAllergic Asthma Anticoagulants Crohn's Disease Cystic Fibrosis Gaucher Disease Growth Hormone - Adult Growth Hormone - Pediatric Hemophilia Hepatitis C HIV Infertility Multiple Sclerosis Oncology Osteoporosis Pulmonary Arterial Hypertension (PAH) Primary Immune Deficiency Psoriasis Respiratory Syncytial Virus (RSV) Prevention Rheumatoid Arthritis Transplant
Our Specialized Services
© Copyright 2008 Walgreen Co.35
Confidential
Take Care Clinic Services
Respiratory Illnesses BronchitisCommon ColdsCoughsEar InfectionsFluLaryngitisSinus Infections Sore Throat/Strep ThroatUpper Respiratory Infections
Additional Treatments Allergies – seasonalBladder Infections (female, ages 12-65)Diarrhea, Nausea and VomitingEarly Lyme DiseaseFever (<72 Hours)Head LiceMononucleosisPink Eye and StyesScalp RashSwimmer’s EarSwimmer’s Itch
Skin Conditions AcneAthlete’s FootCold SoresDry SkinImpetigoItchy SkinPoison Ivy/Poison OakRashesRingwormScabiesShinglesSkin InfectionsSunburnTick/Insect BitesWart Evaluation
Diagnostic Testing Blood Pressure/HypertensionPPD/TuberculosisPregnancy
Minor Injuries AbrasionsBurns (minor)SplintersSprains/StrainsStaple/Suture Removal
VaccinationsFlu (Seasonal) GARDASIL®(HPV) Hepatitis B Menactra (Meningitis) Shingles Vaccine Tdap (Tetanus, Diphtheria, Pertussis) Td (Tetanus Booster)
PhysicalsCamp PhysicalsSports Physicals
© Copyright 2008 Walgreen Co.36
Confidential
Second Quarter FinancialsPercentage Change
Three Months Ended February 28 (29 in 2008)
Prescription Sales 11.1% 16.4% 11.1%
2008 2007 2006
Net Sales 10.5% 14.6% 10.7%
Net Earnings 5.2% 24.5% 6.6%
*Comparable Drugstore Sales 4.7% 8.9% 6.5%
*Comparable Front-End Sales 4.0% 5.7% 5.0%
*Comparable Prescription Sales 5.2% 10.9% 7.4%
*Comparable Prescriptions (Units) 3.6% 6.3% 3.5%
Percent to SalesThree Months Ended February 28 (29 in 2008)
Gross Margin
2008 2007 2006
28.82% 28.96%
Selling, General and Administrative Expenses
28.44%
21.69%21.75% 21.64%
36*Comparable data excludes February 29th
© Copyright 2008 Walgreen Co.37
Confidential
Class Year2006 $ 2,071
2005 $ 2,524 $ 2,062
2004 $ 2,761 $ 2,438 $ 2,023
2003 $ 3,041 $ 2,745 $ 2,431 $ 2,029
2002 $ 3,192 $ 2,933 $ 2,703 $ 2,414 $ 1,993
Average $ 3,192 $ 2,988 $ 2,738 $ 2,453 $ 2,037 Year 5 Year 4 Year 3 Year 2 Year 1
Front-End Sales
Front-End Sales/Store by Class YearIn Thousands
Note: Data based on net new drugstores, excluding acquired stores and stores converting to or from 24-hour format. Class Year is calculated on a Calendar Year basis; includes only stores open at least 12 months as of 12/31/2007.
© Copyright 2008 Walgreen Co.38
Confidential
0
10
20
30
40
50
60
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
High Px/Cash Flow Low Px/Cash Flow
Compelling Historic Valuation
© Copyright 2008 Walgreen Co.39
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010203040506070
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
High P/E Ratio Low P/E Ratio
Compelling Historic Valuation