Walgreens caps strong '03 with plans to invest in '04

DSN Retailing Today, Jan 26, 2004 by Jim Frederick

CHICAGO -- "Celebrate for a nanosecond, then move on." That policy, articulated by Dell Computer founder Michael Dell and invoked by Walgreens chairman and ceo David Bernauer, set the tone for the drug chain's annual shareholders' meeting Jan. 14.

Company shareholders have much to celebrate, Bernauer told the roughly 2,000 investors and guests who braved chilly temperatures to pack the Grand Ballroom at Chicago's Navy Pier. Despite a muted reaction from Wall Street, the company met elevated earnings expectations for its first quarter, turning in a 13.3% comp-store gain in December and, with the exception of Y2K, saw the "best increase in more than 20 years" in total sales for November and December, Walgreens' chairman noted.

What's more, front-end sales are booming, thanks both to external factors like tax rebates and an improving economy, and internal efforts to eliminate out-of-stocks, advertise more effectively and "aggressively pursue the items customers want," according to Jeff Rein, president and coo.

Nevertheless, Bernauer and Rein put the focus on Walgreens' future. Addressing what they said were the 10 most frequently asked questions about Walgreens, Bernauer and Rein shared the stage to reaffirm the company's strategy of aggressive but carefully considered growth and its expensive pursuit of Grade A real estate and high-tech excellence.

"While capital expenditures should climb to more than $1 billion this year, we still project positive cash flow," Bernauer said. "That means we can grow aggressively, accelerate real estate purchases and make the investments in technology and other initiatives to support our growth and stay ahead of the competition, without incurring debt."

The company's top managers also reassured shareholders that shoehorning hundreds of additional Walgreens stores into already densely stored markets nationwide was a sound investment.

"The demand, especially for convenient, efficient drug stores--that is to say, Walgreens--is accelerating, not slowing," said Bernauer. "The biggest chunk of our business--more than 60%--is prescription drugs, and their U.S. sales are expected to grow almost 150% to $446 billion in the next decade. We need only about 20% of those new scripts to fuel our planned growth."

Rein added that the chain's policy of building stores closer together in densely populated areas paid off for Walgreens in market share gains and higher sales and profits overall.

"Initially, when we build stores close together, there is some cannibalization of sales," he told shareholders. "But after about a year, sales in both stores will usually take off.