Walgreen Co. is well-positioned for growth with its "health and daily living store" strategy and will continue to move forward with innovations in retailing and pharmacy care, company executives said at the drug chain's annual shareholders meeting.

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Annual meeting: Walgreens sticks to strategy

January 11th, 2012
Walgreens CEO Greg Wasson at the annual shareholders meeting in Chicago.

CHICAGO – Walgreen Co. is well-positioned for growth with its "health and daily living store" strategy and will continue to move forward with innovations in retailing and pharmacy care, company executives said at the drug chain's annual shareholders meeting.

What's more, the company said Wednesday that its strategic plan — including restructuring efforts to improve productivity and pare costs — bolsters its position in the stand-off with pharmacy benefit manager Express Scripts Inc., whose provider network the 7,800-store chain exited as of Jan. 1.

"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%, the largest in the company's history," chairman Alan McNally told the roughly 2,000 shareholders gathered at the event.

"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," McNally added. "In fiscal 2012, we will continue our sharp focus on revenue growth, cost savings and capital allocation, and enhancing our customer experience."

In fiscal 2011, ended Aug. 31, the nation's largest drug store chain posted new records in revenue, with sales up over 7% to $72.2 billion; gross profit, totaling $20.5 billion; and earnings per diluted share, coming in at $2.94. In addition, cash flow from operations was $3.6 billion.

"Our opportunity now is to combine the best locations in America with an outstanding customer and patient experience — what we call the 'Well Experience,' " president and chief executive officer Greg Wasson said at the meeting. "Our new pilot drug store 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 drug store format and creating something unique, new and special."

Earlier this week Walgreens unveiled latest example of the Well Experience stores with its new flagship store in Chicago on State and Randolph streets, which sports expanded pharmacy and front-end offerings plus other innovative features not found in a traditional drug store.

The pilot for Well Experience concept includes over 20 stores in the Chicago area, and Walgreens said Wednesday that on Jan. 19 it will hold the grand reopening of all of its Indianapolis market stores now converted to the new format.

Wasson noted that the new model establishes Walgreens as a neighborhood health destination by conveying a key message to consumers: Our stores are convenient providers of health care, not just prescription drugs.

"With these innovative changes, we can more easily and quickly expand the scope of services we can offer in our drug stores, such as immunizations and vaccinations, and acute and primary care," he explained. "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?' "

According to Walgreens, such feedback has solidified the company's confidence in its dispute with Express Scripts. The company reported in a Securities and Exchange Commission filing that in fiscal 2011 Express Scripts processed about 88 million prescriptions filled by Walgreens, or roughly $5.3 billion of its sales, and that for the first four months of fiscal 2012 ended Dec. 31, the PBM will have processed 26 million prescriptions filled by the chain. However, Walgreens stressed that its new drug store format, competitive prices, and prescription cost-savings programs elevate the role of pharmacy in the communities it serves and will tighten relationships with patients, health care systems, employers and other PBMs.

"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 stated. "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."

To that end, Walgreens said it's seeing record numbers of daily signups for its Prescription Saving Club and that over 120 Express Scripts clients have informed the chain they have switched to a different PBM or acted to maintain access to Walgreens pharmacies in 2012.

"As we've said before," Wasson commented, "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."

Other key achievements by Walgreens in fiscal 2001, executives said, include the following:

• Converting and opening more than 3,700 stores under its Customer-Centric Retailing initiative, bringing the total to 6,400 stores since the effort launched in 2009.

• Exceeding a three-year goal to deliver $1 billion in annual pretax savings through the Rewiring for Growth initiative.

• Launching a new private brand called Nice! which, along with subsidiary Duane Reade's Good & Delish brand, the company now offers over 400 grocery and household private-label products.

• Kicking off a plan to address "food deserts” — underserved communities lacking ready access to fresh, healthy foods — by offering an expanded selection of fruit, vegetables and other staples at 1,000 Walgreens stores nationwide.

• Acquiring a leading e-commerce site, drugstore.com, to advance Walgreens' multichannel strategy.

• Completing the sale of its PBM business to Catalyst Health Solutions Inc.

And chief financial officer Wade Miquelon added that Walgreens expects to realize further improvements on the operational side. "Since exceeding our three-year goal to deliver $1 billion in annual pretax savings through Rewiring for Growth," he stated, "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."

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