Walgreens outlook not gloom and doom

For several years, the Walgreens annual shareholders meeting had been a time of yearly celebration; this year, however, executives had a bit of explaining to do, in order to convince investors that the company remains a top-notch investment.

Indeed, this has been a trying year for Walgreens:

• stock down 23%; 

• sales and earnings growth down after decades and decades of consecutive growth—almost unprecedented in the company’s history; 

• the sudden and unexpected resignation of former chairman and CEO Jeff Rein; 

• projected store expansion cut to 4% to 4.5% in 2010; 2.5% to 3% in 2011, to  boost cash flow; 

• plans to cut 1,000 positions at the headquarters and field levels…

All told, 2008-09 has proven to be very un-Walgreens-like for Walgreens.

But it wasn’t all gloom and doom for Walgreens, which despite the shortcomings, still performed quite well in relation to the dismal state of the economy and in stark contrast to scores of retailers whose recent performance sealed many of their fates. Despite the dropoff in growth, Walgreens managed to grow its fiscal first-quarter sales 6.6% during the period ending Nov. 30, 2008, with comp sales up 1.7% overall, and 2.6% in pharmacy. In December, Walgreens same-store sales grew 4.9% while retailers in most other sectors were singing the post-holiday sales blues, as Black Friday proved “gray” at best for most retailers.

Most important, the shareholders meeting was further confirmation that the self-styled “hedgehog” of drug store retailing is changing with the times. Once reticent to make major acquisitions opting rather to grow organically, Walgreens has made several important deals that have grown its presence in clinics — both retail-based convenient care clinics and employer-based clinics—specialty pharmacy and mail order.

One of the most hopeful signs to come out of Walgreens‚ Jan. 14 shareholders' meeting: that the chain has launched a massive and coordinated program to integrate all its pharmacy and health service capabilities on behalf of corporate health plan sponsors and other third-party prescription payers. That new program for employers, called Complete Care and Well-Being, is offered through Take Care Health Systems, a Walgreens subsidiary that offers worksite health-and-wellness centers and in-store, walk-in clinics.

Complete Care's mission is to save employer-based health plan sponsors money by bringing together all the company's pharmacy, health-and-wellness services under a single umbrella, and making prices for prescriptions and other health services transparent to employers. By fostering interaction among pharmacists, clinicians and patients, the thinking goes, Walgreens is pursuing "a fundamental change to the delivery of healthcare services for employers, their employees, dependents and retirees," the company said.

The upshot is that Walgreens has announced its strategy for competing with CVS Caremark's integrated pharmacy/PBM model. Walgreens‚ answer to CVS: a fully integrated menu of pharmacy and health services to bring down the spiraling healthcare costs that companies are shouldering for their employees — in some cases, brought right to the employer's worksite.