Walgreens 2006 Annual Report Download - page 4

“Relentless grower”– that’s how one business reporter referred
to Walgreens recently. We agree. Since we opened our 3,000th
store in the year 2000, we’ve almost doubled our chain – to
nearly 5,500 stores at the end of fiscal 2006. Both new stores
and increased productivity in existing stores have steadily fed
our sales and profit lines, giving us a distinction enjoyed by
only one other Fortune 500 company – 32 years of consecutive
record results.
We’re a century-old company profiting from an extreme
makeover – 80 percent of our store base has been built in
the past decade, and less than 8 percent of stores open in
1990 are still operating today in their same locations.
The road we’ve traveled has been no cakewalk. At every turn,
we’ve faced our “lions and tigers” – from vigorous competitors
…to government regulation. As the industry leader, there’s
no shortage of doomsayers forecasting our fall. Mass merchants,
deep discount drugstores, food/ drug combo stores, mail
service prescriptions, Internet drugstores, pharmacy benefit
managers – since the 1970s, each of these formats has been
cited as our death knell. We have prevailed.
Walgreens is nothing if not plucky. Our moves are rarely head-
line-grabbing … success is achieved in a more boring manner:
through hard work, consistent improvement and fanatical
attention to serving customers better than any retailer in
America. We live by the words of our founder, Charles R.
Walgreen Sr.: “Success,” he said, “is doing a thousand little
things the right way… over and over again.”
Could you summarize the past year’s performance?
Dave Bernauer: Sluggish start, great finish – we ended fiscal
2006 with our best comparable store sales quarter of the year.
Customer counts are showing a strong upswing, increasing
8 percent chainwide in the fourth quarter. While a mild flu
season held down prescription sales this past winter, that
turned around in the fourth quarter, when prescription sales
in comparable stores jumped 12.3 percent. This compares
to a 9.2 percent increase for the full fiscal year. We filled
529 million prescriptions in fiscal 2006, an increase of
8.1 percent over the previous year.
What about profits?
Jeff Rein: We had a solid earnings year. A key indicator is sales
per customer in the non-pharmacy – or front end – of the
store. That ticked up significantly in 2006, and says we’re
doing a better job of having what our customer wants, when
she wants it. It reflects product selection, in-stock and store
conditions, advertising and personal service. And we know
we can get even better in all these measures.
Greater use of generic drugs, meanwhile, not only saved
money for patients and payers, but boosted our gross profit
margins. However, offsetting these gains were lower pharmacy
margins from Medicare Part D business along with the
continued shift in our overall sales mix toward prescriptions,
which carry lower margins than front-end merchandise.
Prescriptions account for more than 64 percent of overall sales.
Questions and Answers for Shareholders
November 13, 2006
David W. Bernauer
Chairman
Page 2 2006 Walgreens Annual Report
Letter to Shareholders
Jeffrey A. Rein
President and
Chief Executive Officer