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walgreen Lehman Brothers Eleventh Annual Retail and
- 1. Confidential
Lehman Brothers
Retail and Restaurant Conference
Bill Rudolphsen, Chief Financial Officer
April 30, 2008
New York
© 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
Walgreens At a Glance
The nation’s largest and
fastest growing drugstore
chain
Solid track record: 33 years of
record sales and earnings
Highly respected brand and
growing market share
Highest sales and earnings
per square foot among peers
Strong cost discipline and
best in class execution
Focused on driving sales and
improving returns
3
© Copyright 2008 Walgreen Co.
- 5. Confidential
Growing Market Leadership
#1 in Market Share in 138 Major Markets
23
110 2
10 1
116
2
206
13
52 25
ID
139
8 199 134
61 89
52 22
536
185
64 229 73
133
31 3 107
170
58 62
79
74
495
Number of 220 122 42
stores 90
55 47
235 72
200+
76
54 143
150-200 Washington D.C. 1
603
119
100-150
751
50-100
Hawaii 1
1-50
Puerto Rico
6,271 Retail Locations 74
5
© Copyright 2008 Walgreen Co.
- 6. Confidential
Consistent Growth Record
In Billions
2007 Net Sales $53.8 Billion
$60
15% CAGR
$50
$40
$30
$20
$10
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
6
© Copyright 2008 Walgreen Co.
- 7. Confidential
Growing Market Coverage
Percent of Total Retail Pharmacies
WAG WAG
6.5%
9.8%
Independents
Independents
Chains w/o WAG 30.7% Chains w/o WAG
37.1%
30.4%
28.6%
13.1%
17.8%
10.6% 15.3%
Mass
Mass Supermarkets Supermarkets
2001 2006
55,581 Total Stores 56,948 Total Stores
7
Source: NACDS
© Copyright 2008 Walgreen Co.
- 8. Confidential
New Stores Deliver Growing Sales
Returns Improve as they Mature
Average Front-End Sales/Store by Class Year
(000’s)
57% improvement 9.5%
$3,500
from year 1 to 5 $3,192
$2,988
7.7%
$3,000
ars
$2,738
Ye
$2,453 rs
$2,500 a
39.0%
0-1
Ye 6.9%
2
$2,037 1- ears
10+ Years
2-3 Y
$2,000
3-4 Ye
ars 6.3%
4-5
$1,500
Ye
ars
$1,000 5.6%
5-10 Years
$500
25.0%
$0
36% of stores are less than 5 years old
Year Year Year Year Year
1 2 3 4 5
8
Note: Data based on net new drugstores, excluding acquired stores and stores converting to or from 24-
© Copyright 2008 Walgreen Co. 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.
- 9. Confidential
Improving ROIC
Return on Invested Capital
11.0%
10.5%
10.5%
10.0% 10.0%
10.0%
9.7%
9.6%
9.5%
9.0%
8.5%
2003 2004 2005 2006 2007
Source of methodology: McKinsey & Company, Inc. & Copeland, T., et. al. (2000). Valuation: 9
Measuring and Managing the Value of Companies. New York: Wiley. See appendix.
© Copyright 2008 Walgreen Co.
- 10. Confidential
Outpacing Other Retail Pharmacies
Total Same-Store Sales By Month
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
-2.0%
7
7
7
7
07
7
08
7
7
07
7
08
8
-0
-0
-0
-0
l-0
-0
-0
-0
-0
p-
n-
n-
b-
ov
ct
pr
ug
ec
ay
ar
ar
Ju
Se
Ja
Ju
Fe
O
A
M
M
N
D
M
A
Walgreens CVS Rite Aid Longs
Source: Morgan Stanley Research 10
Note: CVS stopped releasing
© Copyright 2008 Walgreen Co.
monthly data beginning Feb. 2008
- 11. Confidential
Consistently Beating The Industry
WAG Script Growth Spread Vs. Industry
8.0%
7.0%
6.0%
5.0%
Total Retail Script Growth Spread
4.0%
3.0%
2.0%
Comp Script Growth Spread
1.0%
0.0%
N7
N6
D7
D6
M 07
Se 7
O7
Ja 7
O6
Ja 6
Fe 8
Fe 7
Ju 7
M8
8
M7
A7
Ju 7
A7
-0
-0
-0
-0
-0
l-0
0
-0
0
-0
0
0
-0
0
-0
0
-0
0
-
p-
p-
n-
n-
b-
b-
n-
ov
ov
ct
ct
ug
pr
ec
ec
ay
ar
ar
Se
WAG Total Retail Script Growth minus IMS w/o WAG
WAG Comp Script Growth minus IMS w/o WAG
11
© Copyright 2008 Walgreen Co.
Source: Company & IMS Data
- 13. Confidential
Disciplined Cost Management
Year-Over-Year % Increase
25.0%
20.0%
Gross Profit
15.0%
SG&A
10.0%
5.0%
0.0%
2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08
13
Note: SG&A data adjusted for Hurricane Katrina
© Copyright 2008 Walgreen Co.
Source: Company Data
- 16. Confidential
Generic Conversions
• 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
16
© Copyright 2008 Walgreen Co.
- 17. Confidential
Prescription Savings Club Card
• 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
17
© Copyright 2008 Walgreen Co.
- 20. Confidential
Specialty Pharmacy:
A Large & Growing Market Opportunity
• 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.
• Increase in FDA approvals of
biotech medication
20
© Copyright 2008 Walgreen Co.
- 21. Confidential
An Emerging Leader in
Specialty Pharmacy
• #1 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
21
© Copyright 2008 Walgreen Co.
- 22. Confidential
Extending 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
• 154 Take Care locations will
grow to 400 by year end
2008
• Platform for additional
services
22
© Copyright 2008 Walgreen Co.
- 23. Confidential
Worksite 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
23
© Copyright 2008 Walgreen Co.
- 26. Confidential
Additional Growth Drivers
Older Americans Spend More
• Aging population will $1,000
$887
drive growth for Rx and
health care services
$750
• Growing employer focus $612
on promoting health and
wellness to enhance $500
productivity and reduce
health care costs $268
$250
• Increased provider focus $97
on transparency
$0
• Generic conversion cycle Under 25-45 45-65 Over
rising 25 65
Drug Spend per Year
26
© Copyright 2008 Walgreen Co.
Source: BLS
- 27. Confidential
Walgreens Strategy
Retail and health care trends have created a more
complex and competitive environment
As the market leader in retail pharmacy we have
tremendous assets to:
• Broaden access through expanded footprints
• Leverage the box to drive top and bottom line productivity
• Expand into adjacent health care services to strengthen the core
Our goal:
• 10,000 points of care by 2012
• 8% annual square footage growth
• 15% earnings CAGR
• Significant value creation for shareholders
27
© Copyright 2008 Walgreen Co.
- 28. Confidential
Questions & Answers
28
© Copyright 2008 Walgreen Co.
- 29. Confidential
Lehman Brothers
Retail and Restaurant Conference
Bill Rudolphsen, Chief Financial Officer
April 30, 2008
New York
© Copyright 2008 Walgreen Co.
- 30. Confidential
Calculation of Adjusted SG&A
4Q04 4Q05 4Q06
($s in millions)
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%
30
© Copyright 2008 Walgreen Co.
2007
- 31. Confidential
Improving ROIC
2003 2004 2005 2006 2007
NOPAT $1,465 $1,687 $1,938 $2,154 $2,514
Average
Invested $15,221 $17,341 $19,412 $21,501 $23,896
Capital
ROIC* 9.6% 9.7% 10.0% 10.0% 10.5%
NOPAT = Net Operating Profit After Tax
ROIC = 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
31
© Copyright 2008 Walgreen Co.
- 32. Confidential
Acquisitions Help Drive Growth
2008:
• I-Trax (CHD Meridian and ProFitness Solutions) – worksite healthcare clinics
• Whole Health Management – worksite healthcare clinics
2007:
• 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’s
2005:
• Schraft’s Specialty Pharmacy
• Home Pharmacy of CA
• Selected assets from the 23-store Medic drugstore chain
32
© Copyright 2008 Walgreen Co.
- 33. Confidential
Our Specialized Services
Specialty Pharmacy
Home Infusion Services
Allergic Asthma
Anti-infectives (antibiotics,
Anticoagulants
antifungals, antivirals)
Crohn's Disease
Antiemetics
Cystic Fibrosis
Catheter Management
Gaucher Disease
Chemotherapy
Growth Hormone - Adult
Deferoxamine for iron storage diseases
and iron toxicity Growth Hormone - Pediatric
Enteral Nutrition Hemophilia
Heart Failure Hepatitis C
Hydration HIV
Immune Globulin Infertility
Infliximab (Remicade®) Multiple Sclerosis
Therapies for Paget's Disease and Oncology
diseases causing hypercalcemia Osteoporosis
Pain Management Pulmonary Arterial Hypertension (PAH)
Respiratory IV and Inhaled Primary Immune Deficiency
Steroids Psoriasis
Respiratory Syncytial Virus (RSV)
Total Parenteral Nutrition (TPN)
Prevention
Rheumatoid Arthritis
Transplant
33
© Copyright 2008 Walgreen Co.
- 34. Confidential
Take Care Clinic Services
Respiratory Illnesses Skin Conditions Vaccinations Additional Treatments
Acne Flu (Seasonal) Allergies – seasonal
Bronchitis
Athlete’s Foot GARDASIL®(HPV) Bladder Infections (female,
Common Colds
Cold Sores Hepatitis B ages 12-65)
Coughs Dry Skin Menactra (Meningitis) Diarrhea, Nausea and
Ear Infections Impetigo Shingles Vaccine Vomiting
Itchy Skin Tdap (Tetanus, Early Lyme Disease
Flu
Diphtheria, Pertussis)
Poison Ivy/Poison Fever (<72 Hours)
Laryngitis
Oak Td (Tetanus Booster) Head Lice
Sinus Infections
Rashes Mononucleosis
Sore Throat/Strep Throat Diagnostic Testing
Ringworm Pink Eye and Styes
Blood
Upper Respiratory Infections Scabies Scalp Rash
Pressure/Hypertension Swimmer’s Ear
Shingles
Minor Injuries PPD/Tuberculosis
Skin Infections Swimmer’s Itch
Abrasions Pregnancy
Sunburn
Burns (minor)
Tick/Insect Bites
Splinters
Wart Evaluation
Sprains/Strains
Staple/Suture Removal Physicals
Camp Physicals
Sports Physicals
34
© Copyright 2008 Walgreen Co.
- 35. Confidential
Second Quarter Financials
Percentage Change
Three Months Ended February 28 (29 in 2008)
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%
Prescription Sales 11.1% 16.4% 11.1%
*Comparable Prescription Sales 5.2% 10.9% 7.4%
*Comparable Prescriptions (Units) 3.6% 6.3% 3.5%
Percent to Sales
Three Months Ended February 28 (29 in 2008)
2008 2007 2006
Gross Margin 28.82% 28.96% 28.44%
Selling, General and Administrative 21.75% 21.64% 21.69%
Expenses
*Comparable data excludes February 29th
35
© Copyright 2008 Walgreen Co.
- 36. Confidential
Front-End Sales
Front-End Sales/Store by Class Year
In Thousands
Class Year
2006 $ 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
36
Note: Data based on net new drugstores, excluding acquired stores and stores converting to or from 24-
© Copyright 2008 Walgreen Co. hour format. Class Year is calculated on a Calendar Year basis; includes only stores open at least 12
months as of 12/31/2007.
