walgreen lehman brothers eleventh annual retail and

© Copyright 2008 Walgreen Co.

Lehman BrothersRetail and Restaurant Conference

Bill Rudolphsen, Chief Financial OfficerApril 30, 2008

New York

Confidential

© Copyright 2008 Walgreen Co.2

Confidential

Safe Harbor

• Certain statements and projections of future results made in this presentation constitute forward-looking information that is based on current market, competitive and regulatory expectations that involve risk and uncertainty.

• Please see our Form 10-K for a discussion of factors as they relate to forward-looking statements dated August 31, 2007.

2


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The nation’s largest and fastest growing drugstore chainSolid track record: 33 years of record sales and earningsHighly respected brand and growing market shareHighest sales and earnings per square foot among peersStrong cost discipline and best in class executionFocused on driving sales and improving returns

Walgreens At a Glance


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Best Corners In America


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Growing Market Leadership

61

76235

495

6431

10

52

138

ID25

119

2

54

170

122

52

89

72220

110

3

1

47

133

55143

536

5874

199

116

139

229

90

603

79

206

200+

150-200

100-150

1-50

50-100

Number of stores

185

#1 in Market Share in 138 Major Markets

751

232

13422

73107

62

42

1Hawaii

Puerto Rico

746,271 Retail Locations

Washington D.C. 1


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Consistent Growth Record

$10

$20

$30

$40

$50

$60

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

2007 Net Sales $53.8 Billion

15% CAGR

In Billions


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28.6%

17.8%13.1%

30.7%

9.8%

37.Inde

1%

6.5%

30.4%

15.3%10.6%

Chains w/o WAG

SupermarketsMass

pendents

WAG WAG

Independents

Chains w/o WAG

SupermarketsMass

2001 2006

Percent of Total Retail Pharmacies

55,581 Total Stores 56,948 Total Stores

Growing Market Coverage

Source: NACDS


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$2,453$2,738

$2,988$3,192

$2,037

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

Year1

Year2

Year3

Year4

Year5

9.5%

7.7%

6.9%

6.3%

5.6%

25.0%

39.0%

5-10 Years

0-1

Year

s

1-2 Yea

rs

2-3 Years

3-4 Years4-5 Years

36% of stores are less than 5 years old

10+ Years

New Stores Deliver Growing Sales Returns Improve as they Mature

Average Front-End Sales/Store by Class Year(000’s)

57% improvement from year 1 to 5

Note: Data based on net new drugstores, excluding acquired stores and stores converting to or from 24-hour format. Class Year is calculated on a Calendar Year basis; includes only stores open at least 12 months as of 12/31/2007. See appendix for details.


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Improving ROIC

8.5%

9.0%

9.5%

10.0%

10.5%

11.0%

2003 2004 2005 2006 2007

Return on Invested Capital

9.6%9.7%

10.0% 10.0%

10.5%

Source of methodology: McKinsey & Company, Inc. & Copeland, T., et. al. (2000). Valuation: Measuring and Managing the Value of Companies. New York: Wiley. See appendix.


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-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

Mar-07

Apr-07

May-07

Jun-07Ju

l-07

Aug-07

Sep-07

Oct-07

Nov-07

Dec-07

Jan-08

Feb-08

Mar-08

Walgreens CVS Rite Aid Longs

Total Same-Store Sales By Month

Outpacing Other Retail Pharmacies

Source: Morgan Stanley ResearchNote: CVS stopped releasing monthly data beginning Feb. 2008


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0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

Sep-06

Oct-06

Nov-06

Dec-06

Jan-07

Feb-07

Mar-07

Apr-07

May-07

Jun-07Ju

l-07

Aug-07

Sep-07

Oct-07

Nov-07

Dec-07

Jan-08

Feb-08

Mar-08

WAG Total Retail Script Growth minus IMS w/o WAGWAG Comp Script Growth minus IMS w/o WAG

WAG Script Growth Spread Vs. Industry

Total Retail Script Growth Spread

Comp Script Growth Spread

Source: Company & IMS Data

Consistently Beating The Industry


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$0

$10

$20

$30

$40

$50

$60

Food Chain w/oWAG

Wal-Mart WAG

* Source: Company Data

2007 EBIT per Selling Square Foot*

Outperforming Other Retailers


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0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08

Year-Over-Year % Increase

SG&A

Gross Profit

Disciplined Cost Management

Note: SG&A data adjusted for Hurricane Katrina

Source: Company Data


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New Offerings Drive Customer Traffic


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Growing Private Brand Business


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• Benefit the patients• Benefit the payors• Benefit Walgreens• Have a significant impact

on year-over-year changes in prescription sales

• Increase gross profit dollars and the bottom line

Generic Conversions


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• Walgreens Prescription Savings Club drives traffic and attracts new customers

• Walgreens offers discounts on more than 5,000 drugs, including a three month supply of more than 300 generics for only $12.99

• 10% rebate on Walgreen Brand products

Prescription Savings Club Card


ConfidentialLeveraging Our Strong Brand to Establish…


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Retail Sales

Health & Wellness

Medical Campus

Specialty Pharmacy

Store Pharmacy

Multiple Growth Platforms


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• Total annual market potential today of $60 billion, expected to grow to $100 billion by 2010

• Average specialty drug spend > $6,000 per year

• Representing nearly one-quarter of total drug spending in the U.S.

• Increase in FDA approvals of biotech medication

Specialty Pharmacy: A Large & Growing Market Opportunity


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• #1 in home infusion, #4 in specialty pharmacy services

• Exclusive multi-year specialty pharmacy contract for 10 Blue Cross Blue Shield plans provides access to over 20 million members

• Opportunity to expand services beyond specialty pharmacy

• Independence is significant factor in winning new contracts

An Emerging Leader in Specialty Pharmacy


ConfidentialExtending Our Growth in Health & Wellness

Take Care• In-store clinics treat routine

health care needs and minor ailments

• Patients can be seen quickly with no appointments necessary

• 154 Take Care locations will grow to 400 by year end 2008

• Platform for additional services


ConfidentialWorksite Clinics: A Significant and Growing Market Opportunity

• 200-plus corporate clients

• 350 corporate campus locations

• Offering cost effective prescription drugs and health care services

• Market: 7,600 corporate campuses of 1,000 employees or more + families and retirees; potential $20 billion plus industry


ConfidentialServing An Impressive Base of Corporations

http://www.lowes.com/lowes/lkn?action=home&lks=loweslogo

http://en.wikipedia.org/wiki/Image:Harrahs_logo.jpg

http://www.continental.com/web/en-US/Default.aspx

http://www.fpl.com/index.shtml


ConfidentialMedical Campuses: Serving the Patient at the Point of Care


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• Aging population will drive growth for Rx and health care services

• Growing employer focus on promoting health and wellness to enhance productivity and reduce health care costs

• Increased provider focus on transparency

• Generic conversion cycle rising

$97

$268

$612

$887

$0

$250

$500

$750

$1,000

Under25

25-45 45-65 Over65

Drug Spend per Year

Older Americans Spend More

Additional Growth Drivers

Source: BLS


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Retail and health care trends have created a more complex and competitive environment

As the market leader in retail pharmacy we have tremendous assets to:

• Broaden access through expanded footprints• Leverage the box to drive top and bottom line productivity• Expand into adjacent health care services to strengthen the core

Our goal:• 10,000 points of care by 2012• 8% annual square footage growth• 15% earnings CAGR• Significant value creation for shareholders

Walgreens Strategy


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Questions & Answers

28


Lehman BrothersRetail and Restaurant Conference

Bill Rudolphsen, Chief Financial OfficerApril 30, 2008

New York

Confidential


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Calculation of Adjusted SG&A

4Q04 4Q05 4Q06

SGA$ under GAAP $ 2,102.1 $ 2,434.9 $ 2,732.4

Less: Katrina Expense $ - $ 54.7 $ -

Adjusted SGA$ $ 2,102.1 $ 2,380.2 $ 2,732.4

Adjusted YOY % Increase 13.2% 14.8%

($s in millions)


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2003 2004 2005 2006 2007

NOPAT $1,465 $1,687 $1,938 $2,154 $2,514

Average Invested Capital

$15,221 $17,341 $19,412 $21,501 $23,896

ROIC* 9.6% 9.7% 10.0% 10.0% 10.5%NOPAT = Net Operating Profit After TaxROIC = Return on Average Invested Capital

*Source of methodology: McKinsey & Company, Inc. & Copeland, T., et. al. (2000). Valuation: Measuring and Managing the Value of Companies. New York: Wiley.

Source: Company Data

Improving ROIC


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Acquisitions Help Drive Growth

2008:• I-Trax (CHD Meridian and ProFitness Solutions) – worksite healthcare clinics• Whole Health Management – worksite healthcare clinics2007:• Option Care - specialty pharmacy and home infusion services provider• Take Care Health Systems - a convenient care clinic provider• Familymeds Group (selected assets)• Senior Med (primarily prescription files)2006:• Medmark Specialty Pharmacy• Canadian Valley Medical Solutions (home care services)• Happy Harry’s2005:• Schraft’s Specialty Pharmacy• Home Pharmacy of CA• Selected assets from the 23-store Medic drugstore chain


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Home Infusion ServicesAnti-infectives (antibiotics, antifungals, antivirals) Antiemetics Catheter Management Chemotherapy Deferoxamine for iron storage diseases

and iron toxicity Enteral Nutrition Heart Failure Hydration Immune Globulin Infliximab (Remicade®) Therapies for Paget's Disease and

diseases causing hypercalcemia Pain Management Respiratory IV and Inhaled Steroids

Total Parenteral Nutrition (TPN)

Specialty PharmacyAllergic Asthma Anticoagulants Crohn's Disease Cystic Fibrosis Gaucher Disease Growth Hormone - Adult Growth Hormone - Pediatric Hemophilia Hepatitis C HIV Infertility Multiple Sclerosis Oncology Osteoporosis Pulmonary Arterial Hypertension (PAH) Primary Immune Deficiency Psoriasis Respiratory Syncytial Virus (RSV) Prevention Rheumatoid Arthritis Transplant

Our Specialized Services


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Take Care Clinic Services

Respiratory Illnesses BronchitisCommon ColdsCoughsEar InfectionsFluLaryngitisSinus Infections Sore Throat/Strep ThroatUpper Respiratory Infections

Additional Treatments Allergies – seasonalBladder Infections (female, ages 12-65)Diarrhea, Nausea and VomitingEarly Lyme DiseaseFever (<72 Hours)Head LiceMononucleosisPink Eye and StyesScalp RashSwimmer’s EarSwimmer’s Itch

Skin Conditions AcneAthlete’s FootCold SoresDry SkinImpetigoItchy SkinPoison Ivy/Poison OakRashesRingwormScabiesShinglesSkin InfectionsSunburnTick/Insect BitesWart Evaluation

Diagnostic Testing Blood Pressure/HypertensionPPD/TuberculosisPregnancy

Minor Injuries AbrasionsBurns (minor)SplintersSprains/StrainsStaple/Suture Removal

VaccinationsFlu (Seasonal) GARDASIL®(HPV) Hepatitis B Menactra (Meningitis) Shingles Vaccine Tdap (Tetanus, Diphtheria, Pertussis) Td (Tetanus Booster)

PhysicalsCamp PhysicalsSports Physicals


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Second Quarter FinancialsPercentage Change

Three Months Ended February 28 (29 in 2008)

Prescription Sales 11.1% 16.4% 11.1%

2008 2007 2006

Net Sales 10.5% 14.6% 10.7%

Net Earnings 5.2% 24.5% 6.6%

*Comparable Drugstore Sales 4.7% 8.9% 6.5%

*Comparable Front-End Sales 4.0% 5.7% 5.0%

*Comparable Prescription Sales 5.2% 10.9% 7.4%

*Comparable Prescriptions (Units) 3.6% 6.3% 3.5%

Percent to SalesThree Months Ended February 28 (29 in 2008)

Gross Margin

2008 2007 2006

28.82% 28.96%

Selling, General and Administrative Expenses

28.44%

21.69%21.75% 21.64%

35*Comparable data excludes February 29th


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Class Year2006 $ 2,071

2005 $ 2,524 $ 2,062

2004 $ 2,761 $ 2,438 $ 2,023

2003 $ 3,041 $ 2,745 $ 2,431 $ 2,029

2002 $ 3,192 $ 2,933 $ 2,703 $ 2,414 $ 1,993

Average $ 3,192 $ 2,988 $ 2,738 $ 2,453 $ 2,037 Year 5 Year 4 Year 3 Year 2 Year 1

Front-End Sales

Front-End Sales/Store by Class YearIn Thousands

Note: Data based on net new drugstores, excluding acquired stores and stores converting to or from 24-hour format. Class Year is calculated on a Calendar Year basis; includes only stores open at least 12 months as of 12/31/2007.


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0

10

20

30

40

50

60

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

High Px/Cash Flow Low Px/Cash Flow

Compelling Historic Valuation


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010203040506070

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

High P/E Ratio Low P/E Ratio

Compelling Historic Valuation

walgreen lehman brothers eleventh annual retail and

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