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In big shift, Walgreens eases growth throttle

BY Jim Frederick

DEERFIELD, Ill. —Bowing to the realities of a bleak economic outlook, a crowded drug store marketplace and its own need to bolster profitability, Walgreens revealed this month that it would scale back significantly on its organic store construction and expansion program beginning this summer.

The reduction in ground-up store development for Walgreens marks a major shift. For much of the past two decades, Walgreens has been on a torrid expansion campaign, marked by the industry’s most aggressive store-construction program and a bold and seemingly unstoppable march into every major market in the continental United States. Along the way, the company has opened hundreds of new stores each year, smashing through the 6,000-store barrier last fall in New Orleans and repeatedly reaffirming long-stated plans to operate 7,000 stores in all 50 states by 2010.

Fiscal 2008 is no exception: Walgreens will open more than 500 net new organic stores in the fiscal year ended Aug. 31, 2008. But that white-hot development campaign will cool off significantly in the coming years.

New store construction will slow from this year’s program—which will add a nearly 9 percent increase in net new stores—to “a goal of about 6 percent in fiscal 2010 and approximately 5 percent annual increases beginning in fiscal 2011,” the company said.

That marks a significant departure from Walgreens’ previously stated goal of 8 percent annual long-term growth.

“This move allows us to improve both return on invested capital and overall shareholder value,” chairman and chief executive officer Jeff Rein said. “At the same time, it gives us the flexibility to invest in our core strategies.”

Even with the scale-back, new store openings that are already in the pipeline are expected to result in approximately 8 percent organic store growth in fiscal 2009, adding about 495. But beginning in fiscal 2010, development will flatten, with 425 new stores expected that year and 365 new stores going forward.

Those figures exclude any acquisitions in those years, company officials noted.

By moderating its organic store growth, Walgreens said it expects to cut capital expenditures by about $500 million over the next three fiscal years compared to the company’s previously announced plans. Still, the company said it “remains on track to reach its goal of operating more than 7,000 stores by 2010 and continue expanding throughout the U.S.”

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CVS Caremark to expand headquarters, add positions

BY Antoinette Alexander

WOONSOCKET, R.I. CVS Caremark has announced expansion plans for its headquarters over the next two years, a move that will help support the company’s continued growth and current hiring expectations of more than 200 new positions on its corporate campus.

The nature of the new jobs was not disclosed. In Rhode Island, the company currently employs 5,800 associates.

The plans are to build two new 150,000-square-foot office facilities in the Highland Corporate Park in Cumberland, R.I. The company has been based in Highland Corporate Park, which is jointly located in Cumberland and Woonsocket, since 1982. The company significantly expanded its customer support center facilities in 1988 and again in 2000.

“Our company was founded in Rhode Island more than 40 years ago and we feel fortunate to be able to continually reinvest in our home state,” stated Tom Ryan, chairman, president and chief executive officer. “As the largest company in Rhode Island we are looking to further expand our base of operations to support our continued growth and, as a result, increase our workforce over the next few years.”

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A&P announces fiscal Q1 improvements

BY Antoinette Alexander

MONTVALE, N.J. A&P, which operates 446 stores under such banners as A&P, Pathmark and Waldbaum’s, announced on Friday improved results for the first quarter as it nears the completion of the Pathmark integration.

“The first quarter of 2008 clearly demonstrates our continuing progression in operating improvement with the achievement of our fourth straight quarter of comparable store sales of over 3 percent,” stated Eric Claus, president and chief executive officer. “Further, Pathmark is already achieving positive results with comparable store sales climbing above 3 percent for the first time in many years. The company is also well underway with the completion of the Pathmark integration, as many of the planned milestones have been achieved. As of the end of the first quarter, our annualized run-rate of synergies is approximately $100 million.”

Sales for the quarter totaled $2.9 billion compared with $1.7 billion in the year-ago period. Same-store sales rose 3.2 percent, which excludes sales for Pathmark stores acquired in December 2007. Same-store sales for Pathmark, measured during the same period, rose 3.1 percent.

Net income from continuing operations was $3.8 million, with a net loss per diluted share of 48 cents after adjusting for non-operating income related to fair value adjustments. This compares with income of $61.4 million, or $1.45 per diluted share, in the year-ago period.

The company did not break out pharmacy sales results.

As previously reported by Drug Store News, the company announced during the quarter an integral step in its transformation—the conversion of the majority of SuperFresh stores in the Philadelphia market to the recently premiered Price Impact format under the Pathmark Sav-A-Center banner and a number of SuperFresh locations retaining the Fresh format with significant upgrades.

Also during the quarter, the supermarket chain completed the remodel of A&P Fresh in Holmdel, N.J., to the updated Fresh format and began remodeling additional stores. The company also premiered its Price Impact format in the Irvington and Edison Pathmark stores.

“The remainder of fiscal 2008 will be focused on progressing the company further toward operating profitability by: moving forward our operating and aggressive merchandising strategies; maintaining cost control and reduction disciplines throughout the business. Integral to our drive to profitability is the continued and ongoing execution of capital improvement projects all geared for maximum return, and particularly weighted to value propositions,” stated Claus.

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