Walgreen sees strong exit from downturn

The largest U.S. drugstore chain hopes that initiatives such as its remodeled stores and localized selection should push shoppers to buy more.

Walgreen Co has also expanded into broader healthcare services to help meet the needs of the aging population and millions of uninsured and underinsured Americans.

The economy has created a new consumer, with changed spending habits that the company thinks will last, Chief Executive Greg Wasson said at the annual meeting.

If Walgreen could get each shopper to buy about one more item, bringing the average number of items purchased to four, the company's profitability would double, Chief Financial Officer Wade Miquelon told investors.

Walgreen has the opportunity to emerge from the economic downturn and the changes going on in the U.S. health care system as a stronger company, with greater market share and prospects for strong, profitable and sustained growth, Chairman Alan McNally told investors at the Chicago event.

For now, Walgreen is focused solely on the United States. Wasson suggested that international expansion, if it were to come, is at least a few years away. The company will be prepared if the opportunity presents itself, he told reporters.

At home, Walgreen faces increased competition as more patients switch prescriptions to mail-order plans -- meaning fewer trips to Walgreens stores -- or head to rival chains like Wal-Mart Stores Inc .

But it has also gained ground as its closest rival, CVS Caremark Corp , has been focused on integrating its purchase of the Longs Drug chain and fixing its pharmacy benefits management business.

Walgreen has scaled back its rapid store openings, but continues to open new stores and acquire others. On Wednesday, it announced plans to buy Minnesota's Snyder's Drug Stores chain. Walgreen is expanding into broader services, such as clinics and specialty pharmacy services.

FREE SHOTS

Walgreen offered the hundreds of investors in attendance on Wednesday an opportunity to get free H1N1, or swine flu, vaccinations. The company charges $18 for the shots at its more than 7,100 stores and hundreds of in-store Take Care clinics.

Flu shots have been a driving force behind Walgreen's campaign to attract more shoppers. The company said it has administered nearly 5.5 million seasonal flu shots since September, or nearly 5 percent of all of the shots given in the country. It has already administered more than 1 million vaccinations for H1N1.

Still, it is too early to tell whether people coming in for shots turn into repeat customers, executives told reporters.

Under a plan unveiled in 2008, Walgreen is still targeting savings of $500 million during its current fiscal 2010 and $1 billion per year starting in fiscal 2011. The company still plans to slow its store opening rate to 2.5 percent to 3 percent in fiscal 2011, from 9 percent in 2008.

It has also started to remodel stores. One location that should be considered for a makeover right now, please is a high-traffic location on Chicago's Michigan Avenue, shareholder Lynn Dahl told Wasson, who agreed.

A shareholder proposal to change voting to a simple majority vote structure was approved. The company also plans to consider a proposal to make a significant portion of stock option grants for top executives performance-based after 43 percent of votes cast were in its favor.

Walgreen, based in the Chicago suburb of Deerfield, Illinois, saw its shares fall 7 percent during its latest fiscal year, which ended on August 31. The shares rose 48.8 percent during calendar 2009, while shares of CVS rose about 12 percent. Walgreen rose 0.9 percent to $37.08 on the New York Stock Exchange on Wednesday.

(Reporting by Jessica Wohl; Editing by Richard Chang and Gunna Dickson)