walgreen co. fourth quarter 2008 earnings

Fourth Quarter 2008 Conference CallSeptember 29, 2008

© Copyright 2008 Walgreen Co.

© Copyright 2008 Walgreen Co.22

• Introduction/ Safe Harbor Rick HansDivisional VP - IR & Finance

• Q4 & Fiscal Year Highlights Jeff ReinChairman, CEO

• Q4 & Fiscal Year Financials Wade MiquelonCFO

• Growth Strategy Update Greg WassonPresident, COO

• Summary Jeff Rein

• Questions & Answers All

Fourth Quarter 2008 Agenda


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.


Q4 & Fiscal Year Highlights

Jeff Rein

• 34th consecutive year of record sales and earnings – A record matched by only one other

Fortune 500 company• Sales increased 9.8% to $59.0 billion • Net earnings grew 5.7% to $2.2 billion• EPS reached $2.17 on a fully diluted basis


Another Record Year

• Sales increased 8.8% to $14.6 billion • Net earnings grew 11.7% to $443 million• EPS reached $0.45 on a fully diluted basis


Fourth Quarter Highlights


-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Q4-08

WAG Total Retail Script Growth IMS w/o WAG

Source: IMS Data

WAG Script Growth Vs. Industry

Consistently Beating The Industry


Moderated our organic growth plan for retail store expansion to provide more operational and financial flexibilityAcquired worksite health centers to expand our points of care beyond Take Care ClinicsImplemented disciplined and sustainable SGA expense control• Initiated corporate-wide program to reduce costs

Expanded our leadership team with new talent

FY 2008 Initiatives


Q4 & Fiscal Year Financial Review

Wade Miquelon


Fourth Quarter FinancialsPercentage ChangeThree Months Ended

August 31, 2008 August 31, 2007 August 31, 2006

Net Sales 8.8% 10.3% 16.0%

Net Earnings 11.7% -3.8% 25.3%

Comparable Drugstore Sales 2.6% 6.3% 9.7%

Comparable Front-End Sales 3.7% 6.1% 5.2%

Prescription Sales 7.9% 10.5% 18.0%

Comparable Prescription Sales 2.0% 6.5% 12.3%

Comparable Prescriptions (Units) -0.1% 4.0% 7.1%

Percent to SalesThree Months Ended

August 31, 2008 August 31, 2007 August 31, 2006

Gross Margin 27.6% 28.0% 27.6%

Selling, General and Administrative Expenses

22.8% 23.5% 22.5%

10*Fiscal 2008 fourth quarter includes a LIFO provision of $24.9 million versus a $32.0 million provision in the previous year.


0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08

Year-Over-Year % Increase

SG&A

Gross Profit

Controlling SG&A

Note: SG&A data adjusted for Hurricane Katrina in the fourth quarter 2005

Source: Company Data

Without the vacation accrual credit, SG&A expenses would have increased 8.0 percent


27.5%25.3% 24.7%

23.3% *

0%

5%

10%

15%

20%

25%

30%

Q107 + Q108 Q207 + Q208 Q307 + Q308 Q407 + Q408

* Without the vacation accrual credit, SG&A expenses would have increased 8.0 percent in Q408

Percent Increase in SG&A Dollars:Two-Year Stacked


28.9% 27.6%

23.3% *

0%

5%

10%

15%

20%

25%

30%

Q405 + Q406 Q406 + Q407 Q407 + Q408

* Without the vacation accrual credit, SG&A expenses would have increased 8.0 percent in Q408

Percent Increase in SG&A Dollars:Two-Year Stacked


Gross Profit Margin

• Gross profit increased 7.4% to just over $4.0 billion

• Margins were hurt by increased promotional activity and non-retail businesses, including specialty pharmacy

• Generics and private brand products positively affected gross profit margin


Financial Takeaways

Tax Rate• Q408 of 37.0% vs. 35.0% in Q407Working Capital• Accounts receivable up 13.0%, driven by third-party sales and slower

Medicaid payments• Inventories increased 6.8%, slower than sales• Accounts payable up 14.9%, due primarily to the timing of paymentsBalance Sheet • Q408 net debt of $977 million vs $651 million in Q407CapEx• $2.2 billion in FY 2008• Lower in FY 2009 with slower organic growth


0

100

200

300

400

500

600

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E

Net New Stores

Slowing Organic Net New Store Growth

Challenges Present Opportunities

• Relentless cost control• Focus on driving strategy• Robust financial structure

17


Growth Strategy UpdateGreg Wasson

Hurricane Ike

19


Broadening access to our products and services

Reinventing the shopping experience around the customer

Expanding into related health care services

Efficient systems and processes

The Right Strategies for Growth


Integrated, Cost-Effective Solutions

21

Take Take CareCareSMSM

Health ClinicsHealth Clinics

WorksiteWorksiteClinicsClinics

Home CareHome Care

Medical CampusesMedical Campuses

Specialty PharmacySpecialty Pharmacy

Retail StoresRetail Stores

Mail ServiceMail Service


Prescription Savings Club> 1 million members• Offers more overall value than other

discount programs• Discounts on more than 5,000 drugs,

including a 90-day supply of more than 400 generics for less than a dollar a week

23

Customer-Centric Initiatives


Expanding Health Care Services

Take Care Consumer & Employer Solutions

• Providing routine health care at Walgreens drugstores and large employer worksites

• Nearly 600 health centers and clinics currently and growing to 800

Specialty Pharmacy• Largest independent provider• New Premera contract• Fastest growing segment of pharmacy


Concluding Comments

Jeff Rein


Questions and Answers


Appendix


Calculation of Adjusted SG&A

4Q04 4Q05 4Q06

SGA$ under GAAP $ 2,086.4 $ 2,434.9 $ 2,732.4

Less: Katrina Expense $ - $ 54.7 $ -

Adjusted SGA$ $ 2,086.4 $ 2,380.2 $ 2,732.4

Adjusted YOY % Increase 14.1% 14.8%

($s in millions)

walgreen co. fourth quarter 2008 earnings

Economy & Finance