DEERFIELD, Ill., January 11, 2012 - Coming off a strong fiscal year highlighted by record profits, its strongest increase in net income in a decade and its largest growth in earnings per share in more than 15 years, Walgreens (NYSE: WAG) (NASDAQ: WAG) Annual Shareholders Meeting today outlined the company’s strategies for growth and value creation for shareholders. Addressing approximately 2,000 shareholders in Chicago, Chairman Alan G. McNally, President and Chief Executive Officer Gregory D. Wasson and Executive Vice President and Chief Financial Officer Wade D. Miquelon also discussed the substantial progress the company is making toward its goal of becoming America’s first choice for health and daily living.
McNally said, “As our broad-based transformation continued to accelerate and gain momentum, fiscal 2011 was a year of strong performance for Walgreens with record sales and earnings, double-digit growth in earnings per share in all four quarters and a dividend increase of more than 28 percent – the largest in the company’s history.”
Disciplined focus on its core business strategy helped Walgreens set new records in fiscal 2011 of $72.2 billion in sales, $20.5 billion in gross profit and $2.94 in earnings per diluted share. In addition, cash flow from operations was $3.6 billion. All of this contributed to a dividend increase of 28.6 percent last July and cash returned to shareholders through dividends and share repurchases of $2.4 billion in fiscal 2011.
Operating in an environment that includes a challenging economy, changing health care system and evolving consumer needs that emphasize value, Walgreens achieved many important milestones in fiscal 2011 while focusing on its core business and delivering even better performance from its more than 7,800 drugstores.
Wasson said, “Our opportunity now is to combine the best locations in America with an outstanding customer and patient experience – what we call the ‘Well Experience.’ Our new pilot drugstore format supports our vision of becoming My Walgreens for everyone in America, the first choice for health and daily living. We are stepping out of the traditional drugstore format and creating something unique, new and special.”
Walgreens latest example of its “Well Experience” stores is its new flagship store that opened on Jan. 9 at the corner of State & Randolph streets in Chicago’s Loop. The store features an enhanced, state-of-the-art pharmacy designed to encourage greater interaction between pharmacists and patients; a Take Care Clinic offering a wide range of health care services including vaccinations, health tests, physicals and treatments for common illnesses and minor injuries; an Upmarket Café featuring a juice bar and fresh hand-rolled sushi; and a LOOK Boutique beauty department featuring dozens of prestige and niche cosmetic, skincare and hair care brands not typically found in drugstores.
The pilot program for Walgreens “Well Experience” store format includes more than 20 locations in the Chicago area. On Jan. 19, the company takes the next step with its “Well Experience” format when it celebrates the grand re-opening of all of its Indianapolis market stores, which recently finished their conversion to the new pilot format.
These stores provide patients with greater access to pharmacists by bringing these professionals out from behind the counter. Walgreens also is able to more tightly integrate its retail clinics and pharmacies with this new approach to create a community health corner in its stores.
“With these innovative changes, we can more easily and quickly expand the scope of services we can offer in our drugstores, such as immunizations and vaccinations, and acute and primary care,” Wasson said. “This is what we mean when we say we are advancing the role community pharmacy plays in health care in America. We have heard from key stakeholders across the health care landscape – including CEOs of health plans and major employers – who have visited our ‘Well Experience’ stores. The No. 1 comment I hear is, ‘This is exactly what we need. How fast can you do this?’”
As Walgreens moves forward without being part of the Express Scripts, Inc., pharmacy provider network as of Jan. 1, 2012, the company’s new drugstore format, competitive prices, and cost-savings programs – in particular, 90-day prescription refills at its retail pharmacies and leadership in dispensing low-cost generic drugs – are expected to lead to closer relationships with patients, health care systems, employers and pharmacy benefit managers (PBMs).
Walgreens customers with prescription plans managed by Express Scripts have been seeking ways to continue using Walgreens and preserve their relationship with their trusted Walgreens pharmacist. Most notably, the company is seeing record numbers of daily signups for its Prescription Saving Club (PSC). In the first week of the new year, nearly 125,000 customers signed up for the PSC.
In addition, more than 120 Express Scripts clients already have informed Walgreens that they have either switched to a different PBM or taken steps, consistent with their contracts, to maintain access to Walgreens pharmacies in 2012.
Wasson noted that the growing role that Walgreens and community pharmacy can play in the future of health care in America underscores the company’s position in its contract situation with Express Scripts. “We’ve been working with Express Scripts for most of the past year on a new contract and seek fair value for the services we provide,” Wasson said. “Express Scripts proposed pharmacy reimbursements that are below the industry average cost to provide a prescription. In December, we provided our final offer before the end of the year to Express Scripts to avoid patient disruption. Unfortunately they chose not to accept that offer, and therefore we are moving forward without being part of the Express Scripts network.”
Wasson added, “As we've said before, we believe the long term implications of accepting Express Scripts' below-market proposal would have been much worse than the short-term impact on earnings.”
During the meeting, the company also reviewed key highlights and milestones over the past year, which include:
- Building many of Duane Reade’s store design concepts into Walgreens stores across the country as the company leverages the best of the New York City drugstore chain it acquired in April 2010.
- Converting and opening more than 3,700 stores under its “Customer Centric Retailing” initiative, bringing the total to 6,400 stores since the initiative launched in 2009.
- Expanding its answer to “food deserts” – underserved communities lacking ready access to fresh, healthy foods – with a plan to offer an expanded selection of fruits, vegetables and other staples at 1,000 Walgreens stores across the country.
- Launching a new Walgreens private brand, “Nice!” With “Nice!” and Duane Reade’s “Good & Delish,” the company now offers more than 400 high-quality grocery and household private-brand products.
- Bringing its pharmacists out from behind the pharmacy counter to promote more face-to-face conversations and personal interactions with patients in Walgreens new pilot store design.
- Advancing Walgreens leadership in providing flu shots and other immunizations, delivering 6.4 million flu shots last year that made the company the No. 1 flu immunizer in the U.S. other than the federal government.
- Acquiring a leading e-commerce site, drugstore.com, to advance Walgreens multi-channel strategy and build on its core business. As well, Walgreens introduced “Web Pickup” service at Chicago-area stores and San Jose, Calif., locations, enabling customers to shop online and pick up their orders at a store in as little as an hour.
- Completing the sale of its pharmacy benefit management business to Catalyst Health Solutions, Inc., for $525 million, subject to certain adjustments.
- And, exceeding its three-year goal to deliver $1 billion in annual pre-tax savings through the company’s “Rewiring for Growth” initiative.
These and other achievements in 2011 demonstrate the significant progress Walgreens continues to make in advancing and executing the company’s five key strategies toward its vision to become America’s first choice for health and daily living. Those strategies are:
- Transform Walgreens traditional drugstore to a retail health and daily living store.
- Advance community pharmacy to play a greater role in health care through integration and expanded services.
- Deliver an outstanding customer experience through enhanced employee engagement.
- Expand across new channels and markets, particularly through investments in e-commerce and mobile technology.
- And, reinvent its cost structure through continuous improvement and innovation.
Miquelon, chief financial officer, reviewed Walgreens performance metrics and capital priorities during the meeting, while describing the company’s plans for value creation for shareholders. “Since exceeding our three-year goal to deliver $1 billion in annual pre-tax savings through our ‘Rewiring for Growth’ initiative, we are advancing our strategy of cost control and increased productivity by launching ‘Fuel Well’ – building continuous improvement and innovative cost-reduction and productivity gain into our daily business operations,” he said.
McNally concluded, “Our strong performance and substantial progress in fiscal 2011 places us in excellent position to execute the next phase in our transformation, play a bigger role in people’s lives and in their communities, and create more value for consumers, patients, payers and shareholders. In fiscal 2012, we will continue our sharp focus on revenue growth, cost savings and capital allocation, and enhancing our customer experience.”
Nominees to Walgreens board of directors include:
- David J. Brailer, MD, PhD, Chairman of Health Evolution Partners
- Steven A. Davis, Chairman and CEO of Bob Evans Farms Inc.
- William C. Foote, Retired Chairman and CEO of USG Corporation
- Mark P. Frissora, Chairman and CEO of The Hertz Corporation
- Ginger L. Graham, President and CEO of Two Trees Consulting
- Alan G. McNally, Chairman of the Board of Walgreen Co.
- Nancy M. Schlichting, CEO of Henry Ford Health System
- David Y. Schwartz, independent business advisor and consultant, and former Partner at Arthur Andersen LLP
- Alejandro Silva, Chairman and CEO of Evans Food Group, Inc.
- James A. Skinner, Vice Chairman and CEO of McDonald’s Corporation
- Gregory D. Wasson, President and CEO of Walgreen Co.
Ten of the 11 board members are independent, consistent with the requirement in the company’s governance guidelines that a majority of its board be independent.
Preliminary voting results were announced at the meeting. The final voting results on all agenda items will be disclosed in a Current Report on Form 8-K to be filed by Walgreens with the Securities and Exchange Commission after certification by the inspector of elections.
About Walgreens:
Walgreens (www.walgreens.com) is the nation's largest drugstore chain with fiscal 2011 sales of $72 billion. The company operates 7,818 drugstores in all 50 states, the District of Columbia and Puerto Rico. Each day, Walgreens provides nearly 6 million customers the most convenient, multichannel access to consumer goods and services and trusted, cost-effective pharmacy, health and wellness services and advice in communities across America. Walgreens scope of pharmacy services includes retail, specialty, infusion, medical facility and mail service, along with respiratory services. These services improve health outcomes and lower costs for payers including employers, managed care organizations, health systems, pharmacy benefit managers and the public sector. Take Care Health Systems is a Walgreens subsidiary that is the largest and most comprehensive manager of worksite health and wellness centers and in-store convenient care clinics, with more than 700 locations throughout the country.
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