沃博聯公司 (WBA) 2011 Q2 法說會逐字稿

Good day, everyone, and welcome to this Walgreen Co.

second-quarter 2011 earnings conference call.

Today's call is being recorded.

Now at this time I am pleased to turn the conference over to Mr.

Rick Hans.

Please go ahead, sir.

Thank you, Alan, and good morning everyone.

Welcome to our second-quarter conference call.

Today Greg Wasson, our President and CEO, will discuss the quarter's highlights and our continuing progress in executing our core strategies.

In addition, Wade Miquelon, Executive Vice President and Chief Financial Officer, will detail our second-quarter financial results.

Also joining us on the call and available for questions is Kermit Crawford, our President of Pharmacy, Health and Wellness Services and Solutions, and Mark Wagner, President of Community Management.

When we get to your questions, please limit yourself to one question.

As a reminder, today's presentation includes certain non-GAAP financial measures and I would direct you to our website at investor.Walgreens.com for reconciliations.

Also, I am available throughout the day by phone to answer any additional questions you may have.

You can find a link on our webcast under our Investor Relations website.

After the call this presentation will be archived on our website for 12 months.

We are also making the call available as a podcast.

You can download that too at our Investor Relations website.

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.

Except to the extent required by law, we undertake no obligation to update publicly any forward-looking statement after this presentation, whether as a result of new information, future events, changes in assumptions, or otherwise.

Please see our latest Form 10-K for a discussion of risk factors as they relate to forward-looking statements.

Now I will turn the call over to Greg.

Thank you, Rick, and good morning, everyone.

Thank you for joining us on our call today.

We will cover three main areas today.

First, I will touch on key items in our strong second-quarter financial results.

You saw this morning we had record sales and earnings for the quarter contributing to our third consecutive quarter of double-digit EPS growth.

Second, I will take you through a number of recent actions that are accelerating the execution of our strategies.

And finally, Wade, will walk you through our financial performance in more detail and give you a perspective on the second half of the year.

Starting with our results today, we reported record sales of $18.5 billion for the quarter.

That is up 8.9% from nearly $17 billion in the second quarter last year.

Net earnings for the quarter were $739 million, up 10.4% from $660 million during the same quarter last year.

Net earnings per diluted share were up 17.6% to $0.80 compared to $0.68 in the same period last year.

Our strong cash flow trends also continued this quarter.

Cash flow from operations was $886 million and free cash flow was $690 million.

We also completed $300 million in stock buybacks during the quarter, putting us nearly halfway through our $1 billion share repurchase authorization.

Next let's look at the key drivers of our performance as we continue to turn our core business strategies into results.

Front-end comparable store sales increased 4.3% in the quarter.

As the economy slowly improves and our initiatives take hold, we are seeing increases in both traffic and basket size.

We also saw strong performance in cough and cold products which drove sales in all three months of the quarter and reflected a later onset than last year of the cough/cold/flu season.

Beer and wine sales continue to grow and added 77 basis points to the front-end comp for the quarter.

And, finally, we also posted good holiday performance.

Sales for Christmas and Valentine's Day solidly beat last year's numbers and demonstrated the power that our combination of convenience and value brings to customers who are shopping later and later into the season.

We also had another strong quarter in pharmacy.

Prescriptions sales in comparable stores grew by 3.9% and comp scripts adjusted for [day fall] grew by 4.4% over the same quarter last year.

The cough/cold/flu season added 110 basis points to our script count.

Our share of the overall retail prescription market, not including flu shots, improved to 20.1% for the quarter.

With that performance we achieved a milestone filling the one out of every five retail prescriptions for the first time in company history.

For the flu season this year we administered 6.4 million flu shots.

While industry-wide demand for shots was less than we expected, we continued to grow our market share.

Outside of the federal government we provide more flu shot immunizations than any of the other single entity in the country so we are confident in our strategy to pursue the flu and broader vaccinations and immunization markets aggressively.

Through these efforts we are making healthcare solutions affordable and accessible, driving prevention and wellness, and leading the transformation of community pharmacy.

Solid sales in both the front-end and pharmacy continue to support a healthy relationship between gross profit dollar growth and SG&A dollar growth, allowing us to deliver on our goal of double-digit earnings per share growth.

This quarter gross profit dollar growth is $120 million or 70 basis points above SG&A dollar growth.

Along with strong seasonal sales, we are driving momentum in gross profit dollar growth through store openings and comp store sales which include the positive impact of our customer-centric retailing initiative.

In the quarter we opened 19 new stores and transitioned 159 more stores to our CCR format.

Through the end of the quarter we have converted or opened more than 2,300 CCR stores, well on our way to transitioning 5,500 new and existing stores by the end of 2011.

SG&A control in the quarter was also very good in spite of tough compares from a year ago.

Comparable store expense was the primary driver of expense control, although we continue to see expense growth from new store openings, acquisitions like Duane Reade, and CCR.

More broadly across the Company we are focused on making cost control a continuous process improvement way of life.

That means moving away from cost savings through major restructurings to a discipline that insures we are finding opportunities to be more efficient and productive every day.

As you can see from this chart, our focus on cost is yielding results.

Wade will walk you through more detail on how we see the rest of the year playing out in a few minutes.

We continue to make substantial progress on our key initiatives even in this challenging economic environment.

While the economy is slowly improving, unemployment remains high at 8.9% and food and gas prices are rising.

As costs rise and jobs remain soft customers continue to look for value.

We are also seeing the impact of inflation with a higher LIFO charge this quarter.

In addition, commercial and government reimbursement continue to be important areas of focus for us and anyone in healthcare.

On the government side of the issue, it's still too early to speculate on the eventual timing and impact of AMP.

However, as states wrestle with budget difficulties and the need to reduce overall spending, we do expect pressure to continue on Medicaid reimbursement.

That is why we are working closely with the states and in doing so helping them to understand two significant opportunities that we will be developing over the next several years.

First, it's important to note the generic wave that begins this November will be a big benefit to all payers, including the states, as drug cost trends improve.

In fact, if you look in IMS projections for generic introductions in the next five years, more than one-quarter of prescription drug costs will come out of the system due to brand-to-generic conversions.

As a result, prescription drug costs as a percentage of overall healthcare spend will likely decrease.

Second, by improving patient compliance and adherence through these more affordable generic drugs states can avoid billions of dollars in medically-related costs such as emergency rooms and hospitalizations.

So we look forward to working with states to highlight the importance of these two opportunities in terms of providing access to these affordable drugs as a means to control costs.

Finally this morning, let me update our work on our three core strategies which are to leverage the best store network in America, enhance the customer experience, and make major cost reductions and productivity gains.

We continue to differentiate ourselves from our competitors with progress in several areas.

We are extending our community-based retail network with store openings running at 2.5% to 3% in fiscal 2011, while progressing on our transformation to become the leading provider of pharmacy and health and wellness solutions.

Our successful integration of Duane Reade is moving forward and we are on track with systems conversions.

Also, the pace of Duane Reade store remodels in Manhattan is picking up as we head into the second half of the year.

We are also leveraging our brick-and-mortar assets through our e-commerce business with the goal to become the leader in multi-channel retailing, providing our customers what they want when they want it and where they want it.

And as our cost performance shows, we remain on track to deliver $1 billion in savings by the end of fiscal 2011 against our base year of fiscal 2008.

Over the past several years we have taken a number of steps to align our assets with our core strategies, such as the acquisition of Cardinal Specialty Pharmacy business and the exchange with Omnicare of our long-term care operations for their home infusion business.

Recently we took additional steps to further advance that goal.

As you know, earlier this month we announced our transaction with Catalyst Health Solutions.

Catalyst will acquire Walgreens Pharmacy Benefit Management business, Walgreens Health Initiatives in a cash transaction for $525 million subject to certain adjustments.

And we expect to close by the end of June 2011.

The sale has three strategic benefits.

First, we are divesting non-core assets so we can further increase our focus and discipline on the execution of our core strategies.

The transaction accelerates our strategy of leveraging the best community store network in America by providing and expanding pharmacy and health and wellness solutions to all of our patients and payers.

Second, the sale accelerates our B2B strategy of taking pharmacy and health and wellness solutions to our customers, employers, and government agencies either directly or with our PBM and health plan partners without the inherent conflict of owning a PBM.

And third, we retain and look to grow our Specialty Pharmacy and Mail Service businesses as they are an integral part of our full-service pharmacy offerings.

Catalyst is a strong company and will be a good provider of PBM services to WHI customers and to Walgreen Co.

And additional action we have undertaken recently, again to focus on our core versus non-core assets, is to limit our presence in the respiratory therapy durable medical equipment market in order to accelerate our industry-leading infusion pharmacy business.

This decision is critical to our specialty pharmacy strategy as more patients and payers look to a single provider of both.

As a result, in December we started the process of selling facilities and at this point we have sold RT/DME operations in six states.

Our goal is to ensure we effectively meet the needs of our customers and that we are positioned for long-term success.

We are also taking steps to further align our leaders and structure with our strategic goals.

As you know, we recently announced Hal Rosenbluth's retirement.

He brought tremendous vision and commitment to Walgreens and I look forward to continuing to call on his expertise as a Senior Consultant on Healthcare Services.

As a result, we have completed the full integration of our Pharmacy and Health and Wellness businesses into our newly established Pharmacy, Health and Wellness Services and Solutions Division under Kermit Crawford.

In addition, Jeff Berkowitz recently joined our company as Senior Vice President of Pharmaceutical Development and Market Access reporting to Kermit.

Jeff came to Walgreens from Merck where he was Senior Vice President for Global Market Access.

Along with his responsibilities to broaden and deepen our payer relationships through his leadership of our contracting and pricing team, he also leads our enterprise-wide pharmaceutical purchasing teams for both brands and generics, and plays a vital role in expanding our relationships with our pharma partners.

To support our strategy to become America's first choice for health and daily living needs we established a new Daily Living Products and Solutions Group headed by Joe Magnacca, who joined us with the acquisition of Duane Reade last year.

As President, Joe will combine and lead our very strong marketing and merchandising efforts while continuing to lead Duane Reade.

With the combined leadership and experience of our Chief Marketing Officer Kim Feil and our Chief Merchandising Officer Bryan Pugh, he will head up one of the most talented teams in retail.

We also recently brought on Graham Atkinson, our new Chief Customer Experience Officer.

He comes to Walgreens -- Graham is a responsible for leading our company-wide effort to enhance our customer experience and develop our loyalty strategy.

He comes to us from United Airlines where he established a long and successful record in customer experience and loyalty, leading the development and operation of UAL's various award-winning loyalty programs.

Finally, at analyst day we stated our goal to become America's first choice for health and daily living needs, owning outright the strategic territory of well.

This quarter demonstrates we are well on our way toward achieving that goal.

We are pleased with our results this quarter; however, we remain cautious about the outlook and confident in our direction.

We will continue to differentiate ourselves through a laser focus on developing our core assets, our continued discipline on cost, and a clear vision on how we can become My Walgreens for everyone in America.

With that I will turn the call over to Wade.

Thank you, Greg, and good morning, everyone.

This morning I will review our second-quarter financial results and key metrics in more depth.

I will tie the quarter back to our long-term financial goals, and review our capital allocation decisions in the quarter and how we are thinking about capital allocation going forward.

Let me start by saying that we were pleased with our strong performance on our key financial metrics, including sales, earnings, and EPS in what continues to be a very challenging environment.

Our GAAP earnings per diluted share of $0.80 included the impact of the following items -- $0.01 per share from expenses related to the Duane Reade integration and $0.01 per share from expenses related to our Rewiring for Growth initiative.

This compares to our second-quarter 2010 GAAP earnings per diluted share of $0.68, which included $0.02 per diluted share in restructuring and related costs associated with Rewire.

Our FIFO EBIT increased by 13.6% in the quarter versus 3.2% a year ago.

And, finally, our comps improved across the board.

Comparable store pharmacy sales increased by 3.9% and comparable front-end sales increased 4.3% with total comparable sales up 4.1%.

In looking at number of comps, our comparable prescriptions filled increased by 4.5%.

Greg reviewed the key drivers in the quarter so let me take you through some longer-term trends.

The green bars on this slide show our front-end comp by quarter for the past 3.5 years, while the corresponding blue line represents our two-year stacked front-end comp.

You can see that our second-quarter front-end come of 4.3% is the best in 10 quarters, marking a return to a level we have not seen since 2008 before the recession.

As Greg noted, the significant factors contributing to the acceleration of this quarter's comp were an increase in cough, cold, and flu sales and the momentum we are generating through our CCR merchandising initiatives, including the rollout of beer and wine and our stronger Christmas and Valentine's Day sales programs.

Looking at longer-term trends, I want to highlight that our two-year stack was trending above 9% prior to the onset of the recession and that last year's second quarter appears to be the inflection point.

Since that time the combination of our own initiatives and a more stable economy have led to a stronger two-year stack trend.

Finally, the breakdown between traffic and basket with traffic up 1.6% and basket up 2.6% reflects our focus on achieving the right balance between sales and margin.

Now let me recap the quarter in our Pharmacy business.

Let's look at the last 10 quarters of our script comparison with the green bar showing our quarterly script comp and the blue line showing the two-year stack.

You can see that our second-quarter script comp of 4.5% is the highest level in the past five quarters driven by higher cough, cold, and flu which contributed 110 basis points.

In addition, the two-year stack has tracked consistently in the 6% to 10% range over the past 10 quarters.

At nearly 8% this quarter the two-year stack is currently trending above its 2009 level.

Finally, Greg covered the flu shot update for this season and my only additional comment is to remind you that we do not bear any further inventory risk related to flu shots.

Turning to market share.

As Greg highlighted, we achieved a milestone, filling one of every five retail prescriptions in the quarter, for the first time in our history.

Our 20.1% retail prescription share is up from a year ago.

As with the various drivers of a Pharmacy business, we want to remind you that our prescription comp is the best metric to understand the trends in our Pharmacy business.

This slide shows the spread between our pharmacy sales comp and our prescription comp on a 30-day equivalent basis over the past 10 quarters with the green line representing our pharmacy sales comp, the blue line representing our script comp, and the black line representing the spread between the two.

Since the third quarter of 2009 our prescription comp has exceeded our pharmacy sales comp with the spread a function of a couple factors including brand drug growth and inflation, which tend to inflate the spread, and generics, negative reimbursement, flu-related drugs, flu shots, and the growth in 90-day prescriptions which tend to narrow the spread.

We have highlighted the first quarter of 2010 to illustrate the impact on the spread from the flu-related scripts, which are largely generics and flu shots.

And while this was the most negative spread of the past 10 quarters, it was a strong quarter in Pharmacy demonstrating the disconnect between that spread and the financial performance of the business.

With the coming generic wave we would expect the sales comp to script comp spread to become increasingly negative, but keep in mind we generally make more profit per script on the generic versus on a branded drug.

So going forward I would encourage you to focus more on pharmacy script comp than sales comp per se.

Our gross margin as a percentage of sales is 28.8%, steady with a year ago.

The front-end margins increased but were offset by higher LIFO provision in the quarter.

Retail pharmacy margins were even with last year as the positive effect of generic drug sales were offset by market-driven reimbursements.

Next chart illustrates our trends in front-end and pharmacy margins, which we showed you in the last couple of quarters.

You can see that we had five consecutive quarters of margin improvement on the front end, and while additional progress becomes increasingly difficult due to the rising price environment, we have several initiatives in place for further front-end margin improvement.

I would now like to turn it over to talk about our SG&A trends.

As Greg highlighted, the SG&A increased by $306 million including Duane Reade or 8% on a GAAP basis versus 5.1% a year ago.

And our two-year stacked SG&A of 13.1% compares favorably to last year's two-year stack of 13.2% and is a significant improvement versus our 2009 level of 19.3%.

This graph adjusts SG&A dollar growth for Duane Reade and for Rewire.

Our two-year stacked SG&A dollar growth fully adjusted is 11.1% versus 12.6% a year ago and versus 16.9% in 2009.

Let me walk you through the progression from our GAAP SG&A dollar growth rate of 8% to our adjusted SG&A dollar growth rate.

The Duane Reade integration and operating expenses added about 430 basis points to our SG&A dollar growth while Rewire expenses were lower than a year ago.

And that had a positive impact of 50 basis points and resulted in adjusted SG&A dollar growth of 4.2%.

Also recall, we are on plan to deliver our full $1 billion in Rewire savings by the end of the fiscal year.

While you can see the numbers reflected in our SG&A dollar growth, we have included a reconciliation of the quarterly Rewire numbers in the appendix.

Continuing down the income statement, as noted earlier, the LIFO provision for the quarter was significantly higher at $56 million versus $27 million last year.

This increase negatively impacted the quarter's EPS by about $0.02 versus the prior year.

Restructuring and restructuring-related expenses were $6 million, down from $28 million last year as Rewire now nears completion.

And our net interest expense was $18 million, down from $22 million, reflecting the benefit of the fixed-to-floating interest rate swap that we put in place last year.

Net income was adversely impacted by a higher tax rate which increased by 80 basis points from last year to 37.8% as a result of higher state and federal taxes.

This increase negatively impacted the quarter's EPS by about $0.01 versus the prior year.

For the year we are planning on an effective tax rate of 37.4%.

Finally our average diluted shares outstanding decreased by 62 million due to share repurchases over the past 12 months.

Moving to the balance sheet.

Our cash balance stands at $2.2 billion, down from $3.1 billion a year ago, reflecting strong cash flow, our acquisition of Duane Reade, and other efforts to return record amounts of cash to shareholders through dividends and share repurchases.

Accounts receivable decreased by 7.3% while inventories increased by about 5.7% and accounts payable increased by 6.1%.

Overall, our working capital has decreased by 1.3% and, as a percent of sales, our total working capital has actually decreased by 9.3% as we continue to drive working capital efficiencies across the enterprise.

Our FIFO inventory increased by 6.9% in the quarter against an 8.9% increase in sales, while on a per-store basis FIFO dollar inventory decreased by 0.2% which is strong progress against a 9.6% decrease a year ago.

Shifting gears, I will now review our long-term financial growth goals and look how we are performing against those goals through the first half of the fiscal and finally frame a few of the issues that we face in the second half.

Recall that our objective is to achieve long-term, double-digit EPS growth and our annual goal is to grow gross profit dollars by about 100 basis points more than our SG&A dollars with the benefit of our continued share repurchase program.

The first six months of fiscal 2011 our gross profit dollar growth was 8.8%, 130 basis points higher than our SG&A dollar growth of 7.5%.

We had 931 million average diluted shares outstanding in the half versus 992 million in the first half a year ago, which combined helped us deliver 21.4% diluted earnings per share growth year to date.

With the majority of Duane Reade and restructuring related costs behind us, our 7.5% GAAP SG&A dollar growth through the first half of the year is on track with plan.

Respect to our other two SG&A dollar growth buckets, we are on track with SG&A related to new store openings and ahead related to our core store inflation and business mix and investment.

Let me remind you of our goal of 6.5% to 7.5% SG&A dollar growth for the year.

It is likely that we will be on the lower end of that range, even as we absorb the incremental costs related to things such as the divestiture of WHI.

Let me give you a little more context for both SG&A dollar growth and gross profit dollar growth for the rest of the year.

Last quarter we showed this slide to demonstrate the volatility by quarter in our SG&A dollar growth trends.

If we look at our SG&A dollar growth quarter by quarter this year versus last year, it is important to recall the specific drivers in each quarter, including the Duane Reade acquisition, the timing of flu, and the timing of other initiatives.

In this quarter we were cycling a very difficult SG&A dollar growth comp and consequently we were pleased with our 8% SG&A dollar growth for the quarter.

And as the year progresses you will see our comparisons become easier.

Looking at gross profit dollar growth by quarter this year versus last year, we see a similar volatility with performance driven by new generics and the timing of the flu.

This slide illustrates the easier comparison for the quarter and the more difficult comparisons in the upcoming third and fourth quarters as we cycle the gross profit dollar benefit of CCR and the Duane Reade acquisition.

Finally, I want to share with you another strong cash flow performance.

Cash flow from operations in the second quarter of fiscal 2011 was $886 million, up nearly 50% from $595 million in the year-ago quarter, and year to date it is at $2.1 billion, up 16.3% from $1.8 billion in the first six months of the fiscal 2010.

Free cash flow in the second quarter of fiscal 2011 was $690 million, up over 80% from last year's free cash flow of $375 million.

Year to date our free cash flow is $1.6 billion, up 27.7% from the first six months of fiscal 2010.

Capital expenditures for the quarter were $196 million and year to date are about $469 million.

Capital expenditures for fiscal 2011 are expected to be in roughly the $1.1 billion to $1.3 billion range, excluding business acquisitions and prescription filed purchases.

Earlier this month we announced a definitive agreement to sell WHI to Catalyst Health Solutions in a cash transaction for $525 million.

We expect the transaction to close by the end of June and to be accretive to earnings in fiscal 2011 largely due to the one-time gain and neutral in fiscal 2012, not including the reinvestment of the proceeds.

Given that we have a fairly low book basis, we expect our net one-time gain to be significant and we will update you after it is finalized.

We will retain the Specialty and Mail businesses and be a strategic provider for Walgreen Co.

and we intend to grow with Catalyst and all of our other key partners as well.

We remain very focused on our disciplined approach to capital allocation as we continue to tighten our strategic focus on our core assets.

This chart is in the shape of a diamond because we have four priorities that we balance very carefully.

Our first priority is reinvesting in our core strategies and you are seeing the results of those investments in both our front-end and pharmacy numbers for this quarter.

Our second is investing in strategic opportunities that reinforce and support the core.

For example, the Duane Reade acquisition and file buys.

Also important is working to maintain a good balance sheet and strong credit ratings, and I just ran through those numbers and I feel very good about the state of our balance sheet.

And finally and very, very important is returning cash to shareholders.

To give you more detail on our share repurchase program in the quarter we bought back $300 million of stock and we are nearly halfway through our current $1 billion share buyback authorization.

In the quarter we also paid out $[162] million in dividends and our last dividend increase was 27.3%.

And we do expect meaningful dividend increases until we reach our target payout of 30% to 35%.

In closing, let me just reiterate that we are very pleased with our results.

In the first half of the year we are on track to meet our annual goal of double-digit earnings growth.

We are making solid progress against strategic initiatives and you can see that progress clearly laid out in our earnings, our cash flow, and other things like expenses.

You have our commitment that we will continue to focus on executing our strategy to deliver sustainable growth and value for all of our stakeholders.

So I want to thank you for joining us today and now I am going to turn the call back over to Rick.

Thank you, Wade.

Ladies and gentlemen, that concludes our prepared remarks.

We are now ready to take your questions.

(Operator Instructions) Edward Kelley, Credit Suisse.

Good morning, guys.

First question for you on the gross margin.

I guess it wasn't quite as strong as most of us expected, maybe we were just too optimistic.

But could you talk a little about how the margin played out versus your expectation this quarter, particularly on the front end?

And then you mentioned in the press release the impact of higher commodity prices.

Can you just explain that in a little bit more detail?

Yes, Ed, Greg.

I will start and maybe Wade can fill in.

I think we were pretty pleased with where we finished up.

I think when you look at the LIFO effect that we had on the front end we continue to feel good with how we are managing our front-end margin, especially in this environment with commodity price increases.

I think we are doing a good job continuing to balance price and promotion, working through supply chain costs and so forth to reduce our cost of good.

But I think on the front end we feel pretty strong there also, as you know, lapping strong increase from the year before.

Certainly in Pharmacy.

As we said, the generic increase that we saw was offset somewhat by reimbursement.

The reimbursement step down that we saw in January and February is exactly, pretty much what we planned for.

And we will certainly have to continue to manage to get fair and predictable reimbursement from our payers.

I would just pile on here; I think we feel very good about our gross margins.

I think what we are really focused on again is gross margin dollars and trying to make sure that we play the right balance to get the top line growing as well as the profitability, so I feel in general we struck the right balance.

We are seeing some inflation and, obviously, commodities are up and those feedstocks will funnel through over time.

I think we will be very -- we will be ready to manage it when that comes and there will probably be other opportunities to provide value in private-label and other things as well.

So, again, I think I would encourage you to keep focusing on gross profit dollars, in particular against that construct we have laid out of SG&A dollars.

Okay.

And just on the inflation front, everyone out there on the CPG side is talking about raising prices so it seems like we are going to see more of it.

I would assume that you have got a fair amount of pricing power within your model.

Is that something that you should be able to navigate fine or is that a risk going forward?

How do we think about that?

Well, I think, Ed, certainly it's an environment that we are going to have to focus on extremely well going forward.

We are going to -- as you said, we are going to continue to see higher commodity prices coming through, but we have managed through times like this in the past.

It's all about staying competitive store by store, checking the competition, making sure we go where we can, and making sure we are still providing the right value.

That is what I talk about time and time again that retail is really all about the balance and making sure that you are swinging doors at the same time creating value.

And so I think our convenience, as we have talked about before, allows us some opportunity to get a delta there over others.

We just have to understand what that delta is line by line.

So I think we feel good with being able to manage through it.

Certainly we are going to have to be focused.

We will use this opportunistically to drive our private label even harder, if need be.

We will make sure that we have key price points versus competition.

We will make sure that our KDI, the most important items that we have, are priced right every day, so I think we will be able to manage it very effectively.

But I think it also gives rise to opportunity.

And, Wade, just to follow up on the gross margin question, how do we think about the third quarter now?

Your comparison is particularly easy, maybe you could remind us of why that is so.

I mean I know last year's third quarter on the Pharmacy side was a tough quarter.

Shouldn't you cycle that in a pretty positive way and isn't there the potential to see a pretty strong gross margin quarter again?

I think that is how we are all thinking about it so maybe you could help us as to whether that thought process is right or not.

A couple of things, there was a lot of -- last year actually if you look at our back-half gross profit in dollars, they were fairly strong and that was for a couple of reasons.

Number one is we had the gross profit lift in Duane Reade but we also were cycling the year prior of lots of closeout and others CCR impacts.

So from that regard that actually is a bit tougher compare, but SG&A obviously is a much easier compare.

So I guess what I would say, obviously quarter to quarter we have lots of mix effects from seasonal and other things.

I think I would really kind of try to point you back to that goal of over time to have 100 basis points more gross profit dollar growth versus SG&A.

And if we do that the whole model works.

Maybe a bit more similar to what we have seen play out this order as opposed to what we have seen in prior quarters?

I would just say there is just a lot of moving parts quarter to quarter, so lots of things -- not only seasonality, business mix, changes in plans, etc.

But again I think that we feel that our goal of making sure we have that 100 or more over time is the right goal and a goal that, hopefully, we should be able to achieve.

Okay, thank you.

Thanks, Ed.

Debra Weinswig, Citi.

I am actually going to take the other side of the gross margin on the SG&A front.

Actually, Wade, I was very impressed with the performance in the quarter.

Are you finding that the culture of the organization has changed with regards to expense management and that there might be further opportunities to reduce expenses in the future?

And if so, what might some of those opportunities be?

Debra, maybe I will take that.

Yes, I think there is absolutely a change in focus.

As I have talked about, I think we have got cost reduction and productivity gain kind of embedded in the DNA of the organization now.

Frankly, I think going through our Rewiring for Growth initiative the last couple of years has really done that.

And who knows, it could be the biggest byproduct of that initiative going in the future.

So I think we have folks that are focused on all aspects of the business, turning over every stone from supply chain to just SG&A, corporate expense, store level expense, how we run drugstores and so forth.

So there is no doubt it's in our DNA.

We think there is more opportunity and we are going to go after it.

I think the way, and probably the big difference, is rather from sort of cost cutting or restructuring, which is what we went through the past couple years.

Now it's really focused on continuous process improvement and what we would call cost innovation.

So putting as much creativity into innovating to be much more effective and new ways to drive our business and to manage our costs as we would on top-line growth, and I think that is the real kind of mindset difference.

Okay.

Then also, with over 20% market share in Pharmacy who do you think you are getting market share from?

And with the investments you have made in your business do you expect your share gain to accelerate going forward and how important to have your file buys been to the share gains?

Well, I think, Debra, we are gaining share from just across the board, whether it's -- it varies region by region.

So I think that as long as we continue to execute strong like we are, I think Kermit and his group, Mark, have done a great job with improving service levels and customer sats within our scores.

So I think we will continue to execute and continue to gain share, especially if indeed the reimbursement environment gets a little more challenging there will probably be more opportunity for us to gain share.

But it's pretty much across the board, varies a little bit by region, but we feel good with continuing to grow share.

And you found it broadly across the US?

Yes.

As I said, it may vary somewhat by region but for the most part, yes.

Okay.

And then last question I believe Kim Feil joined the Company in September 2008 as your Chief Marketing Officer and it's obviously has made a significant impact.

What was it that made you reach out to Graham Atkinson to fill the role of Chief Customer Experience Officer?

I believe you are the only retailer that I know that has a role like that in your company, which should obviously set you apart from your peers.

You are right; Kim did start with us a couple of years ago.

Kim has done a fantastic job in taking our organization from what I would call a good advertiser of product to a world-class marketing organization.

She has done exactly what we wanted her to do and continuing to build that.

I think what Graham brings to us is just flat-out experience in both customer experience and loyalty with a world-class operation and world-class product that they built.

And I think that his number one focus is enhancing and elevating our customer experience across the entire enterprise, loyalty of which is one part of it.

And I think the winning retailers, going forward, will be those that really deliver an outstanding customer experience across the entire enterprise.

That is what he is focused on.

I wanted someone -- we wanted someone that could come in and really just be laser focused on that and work with Kim and her insights group and so forth to help deliver.

Great.

Well, thanks so much and best of luck.

Thanks, Debra.

Eric Bosshard, Cleveland Research Company.

Good morning.

On the Rx side you commented that the reimbursement pressure that you saw once the calendar turned was what you expected.

Can you give us a little bit more perspective on how reimbursement rate changes are different or similar this year to prior years and what your expectations are, how that might behave as we move into 2012 with the next generic wave coming?

Yes, I guess the way I would frame it just roughly, Eric, is that last year we said that we kind of had a year on year probably our biggest step down we had ever experienced through a variety of things.

Things like AWP, a few other changes, a few issues, let's say, we had gone through with a few commercial plans, and then also a very large number of year-on-year generic step down.

You added all that up and we said it was almost $0.5 billion year on year.

This year we are not seeing anything in that magnitude for sure.

There was a little bit of pressure coming at us because generics were a little lighter than year prior, but overall a little bit, not overly significant.

Again, as you know, coming into November and December in our 2013 we start to see a big generic wave and that is going to be helpful then as well.

So a little bit of pressure year on year, but not the kind of pressure we saw year prior.

Eric, I think what is encouraging to us, frankly, is what we did see is what we anticipated.

Eric, this is Kermit.

One of the things is that the step down this year is still -- there is a step down this year as compared to last year and we do expect to see that grow in 2012 and even more in 2013.

One thing I would also say though is Kermit's team is also doing a lot of work to continue to reengineer our cost to fill; fully leveraging e-prescribe, our central fill capabilities, other streamlined process.

So we work it from both ends to make sure that we get to the best overall gross and net.

And then a follow-up on the gross margin performance and outlook, the higher commodity costs and the higher LIFO charge.

Is there an intent or opportunity to recapture this or is this just part of a more inflationary environment that creates some pressure on gross margin?

I am just trying to figure out what side of this you are going to end up on, if you can offset it or if you just have to absorb it.

Well, I guess one thing is remember that this is not all CPG type products, that there will be some LIFO over time that tends to come through on the pharma side as well.

In some cases, we are able to price out ahead of it, so you might see the benefit in the numbers even despite the fact that you might have had inventory LIFO hit.

So I think the key thing for us is I would be less concerned about what the LIFO movement is, because over time it doesn't move that much, and really more focused on whether we are sustainably over time able to get our portfolio pricing up to the level we need to for aggregate inflation.

And I think that we are pretty good at doing that.

Yes, Eric, I think, and Wade has alluded to it with an earlier caller, I think it's going to be a combination of obviously managing the competitiveness of those items but also driving our private brand to help offset it.

And we have got to be laser focused on both those areas to achieve the right balance.

And I think with our opportunity to drive private brands we feel pretty good about it.

Great, thank you.

Ann Hynes, Caris & Company.

Good morning.

I just wanted to go back to your gross profit and SG&A long-term growth of 100 basis points.

At the analyst meeting when asked if you expect to achieve that in fiscal 2011 you imply that that probably wouldn't happen.

So when I look at your gross profit comments -- your comments around gross profit and being difficult in the second half, should we assume that that may be gross profit and SG&A growth reverse, that maybe you have higher SG&A growth in the second half of 2011 versus gross profit so in turn you maybe -- if you annualize it, you are still growing gross profit over SG&A it just reverses and it's a timing thing?

I guess what I meant to imply, and I apologize if I wasn't clear, but I think what I meant to imply was that A) it is as a long-term goal so we want to kind of hit that year-by-year, etc., and that 2012 and 2013 would probably be easier than 2011 to hit it because of all of the trend generics, etc.

But that doesn't mean that we are not shooting for that goal this year or that we think we can't achieve it.

Through the first two quarters I think we have got about 130 basis point average.

We are trying to build our business around this to over time sustainably hit it.

But I think the impression I meant to give is that it would just be easier in 2012 and 2013 than 2011, but it doesn't mean that 2011 it's still not our goal.

Okay.

So it might be difficult to get that 130 basis points in the second half just because of the tough comparisons and maybe some Medicaid pricing pressure?

Could be, could be for sure and there is still unknowns, things like AMP and other things that we just don't know yet.

But, again, this is what we are going to target to do.

Again, we encourage you not to just judge it by any one quarter but kind of look at the rolling effect of where we are taking our business over time.

All right, great.

Just -- my second question was around Medicaid.

Do you have any incremental detail you can share about AMP and timing?

Then I know -- I cover the hospitals and a lot of the hospitals are guiding Medicaid down 3% to 4% in the second half starting in July.

Is that what we should assume for your Medicaid pricing, especially I know you have exposure in Texas?

Just any more clarity on what we should assume from Medicaid pricing in the second half would be great.

Ann, as far as AMP, it's still uncertain as far as the timing and the impact of it, so I can't give you any more color there.

As far as state Medicaids, again same thing.

We work with each individual state individually to manage fair and acceptable reimbursement as well as additional solutions.

As I said in my script, one of the things that we are encouraged by is I think there is a lot we can do to help states with.

First and foremost is making sure they do understand that the generic wave and the compliance and adherence of generics is going to be a huge positive for them going forward.

Secondly, we have got a lot of solutions that we can talk to them about and are talking to them about regarding the use of our retail clinics to offset medical costs.

There is no doubt they are going to continue to focus on reducing costs, as everyone is in this environment, and we think we are actually positioned to help bring additional solutions.

Okay, great.

Thanks.

Mark Wiltamuth, Morgan Stanley.

Good morning.

Wanted to ask Kermit a few questions.

As I recall, the SG&A cost saves that are left to go for this year are still largely on the prescription side of the house or the backend of the house.

Can you talk about how you are positioned for delivering cost saves in the back half?

Then second question for you is what is the approach for flu shots going to be next year?

Are we going to keep pushing for more and more shots and did you end up making any money on the 6.4 million shots since we did have to take a write-down?

Mark, so first on the SG&A savings costs around our TCRx, or what we call our transforming community pharmacy, we are on pace to meet our 2011 goals from our Rewire.

So I still feel very good about the second half of the year and the pace we are on to meet the cost savings associated with the pharmacy.

When it comes to our flu program, our flu program -- we still are going to remain aggressive in our flu program as well as in our broader vaccine programs.

So we have clearly established Walgreens as the leader in the flu shot market and with over 26,000 certified pharmacist immunizers we have proven that we can train our entire workforce.

Even with a lack of demand this year in our flu shots, giving only 6.4 million flu shots, we increased our market share by 50 basis points.

So we feel very good about flu shots and additional vaccinations and we certainly expect to grow that flu shot more this year.

I guess to answer your question on did we make money; we absolutely make money when we sell flu shots so we feel very comfortable about flu and our other vaccinations.

To give you another example is you may have heard about the whooping cough that was broken out in California and in Indiana.

We administered over 19,000 DPT vaccinations so we are beginning to expand beyond flu to other vaccinations, like pneumonia, like Zostavax, like Gardasil.

So we continue to see our opportunity in this $10 billion to $20 billion flu immunization and vaccine market.

I guess what I am getting at is next year do you need to make a big inventory commitment in advance or can you just let the market drive the flu shot volume higher and --?

I think over time it's going to be easier to align the demand and supply equation.

You have to remember that this year was coming on the back of the H1N1 issue and so I think everybody had to go out and commit.

But recall, we work with our vendors and for the most part we are able to manage our inventory level down within a pretty close range.

So I do think over time it's going to be easier and easier to align those two.

Mark, Greg.

I would just say this, certainly this year we learned a lot.

Two things, I think the consumers definitely value our convenience to get flu shots so the demand is there.

We can expect that to continue to grow.

And, secondly, we certainly know how to work with our pharma supporters to manage inventory a little better next year.

So we feel good with being able to manage the inventory risk as well as the amount of flu -- and still grow share.

And Greg, just big question, big picture question for you.

Do you feel like you have everything you need now in terms of the portfolio now that you have sold off WHI and you have got the specialty and the home infusion businesses in house?

Do you have everything you need and it's just a matter of executing and driving up returns from here?

Well, Mark, that is a good question, a tough question.

I think I would probably be naive to say that I think we got everything we need.

I think as we continue to grow there is always gaps, there is always sophistication and assets that may come available that make sense, but I think we certainly have come a long way.

And I think what I am really enthused with and feel good about is the focus, because you know there is no doubt, and I have said this several times, we -- our center of gravity are those drugstores and those drugstores are the center of communities across the country.

The more and more focus we get on providing additional services, products, and solutions to communities in need the better off we will be.

So I feel good with some of the divestitures that we have done because I think it's helping our focus.

There certainly will be other gaps and other opportunities for us to continue to drive the business.

File buys, prescription file buys we expect to continue to see as we talked about earlier.

We are going to continue to grow specialty and the infusion business, and that could be through file buy type opportunities as well.

So I never say never, but I think I feel pretty good with the portfolio we have got right now.

Okay, thank you very much.

Thanks, Mark.

Lisa Gill, JPMorgan.

Thanks very much and good morning.

Greg, I thought it was interesting the initiative around educating on 90-day scripts.

Can you maybe just talk about the relationships you have either with PBMs or managed care companies around the 90-day script?

Are you getting buy-in from them around the 90-day or are they giving you pushback because they are trying to promote their own mail-order facilities?

Yes, Lisa, a little of both, which doesn't concern me because frankly the consumer is voting.

And the consumer is basically saying, I want to get my chronic medications in a 90-day supply, or if I do I want to be able to use retail.

They are voting for that more and more.

Certainly, there are obviously others that want to fill those through the mail, and I understand that.

The main thing that I think we are getting buy-in from, from the industry, is we are not looking for 90-day supplies at retail to replace a mail benefit.

We are looking for to add to an existing benefit.

And it is hard for anyone to debate the facts and the results of adding a 90-day retail benefit to an existing mail benefit.

You get higher 90-day utilization, you get improved adherence and compliance; good for the payers, good for the patients, good for everyone.

So, Lisa, as you would suspect, yes, there are some that are pushing back.

But ultimately the consumer will vote, the payers will vote, and then in a few years, in my opinion, this will be a norm.

Let me add that we did a survey, and over 50% of the patients who were getting their 90-day supplies via mail were unaware that there was a retail option to get their 90-day supply.

And we've certainly had the outcomes that show when you add a 90-day-at-retail benefit to an existing 30-day and mail benefit, you both increase adherence, which is addressing our overall company issue around adherence because the lack of adherence is costing this company somewhere in the neighborhood of $300 billion in additional medical costs as well as lowering the overall cost to the payer.

Because in the long-term when you have a generic benefit in your plan, a 90-day generic is driving higher utilization, it's going to lower the overall cost for the payer.

Kermit, are you giving better pricing now?

So if you look, generally speaking, the discounts given at mail order versus retail are generally substantially better and from a consumer perspective they are usually paying two co-pays versus three.

Do you have any managed care plans or PBMs today that are willing to give similar pricing to mail to try to entice the person to do 90 days or it's just the convenience factor of only having to pick up a prescription four times a year instead of 12 times a year?

I would say that our -- pricing is different by customer depending on what they give, what the terms and conditions are, so it varies.

So answering that in one answer is difficult to do, but in general we can provide a very good value proposition that is also good for our margin and good for the payer and good for the patient in a way which makes a 30 to 90 a win/win/win for everyone.

Lisa, Greg; I want to pile on here a little bit, too.

I think you can look at a 90-day supply of prescriptions and the convenience that we bring by someone being able to come into a retail pharmacy within their community the same way you would look at front-end goods and the value that our convenience brings.

People will pay for convenience.

They pay for convenience for our front-end products, even though they may be competitive items, and they also pay for the convenience, whether it's an additional co-pay or a half a co-pay to be able to walk in and see their pharmacist face to face.

So our convenience, just like it does on the front end, supports the pharmacy and a differential co-pay if that is what is required.

Lisa, the other thing I would add is that this is about lowering the overall total cost.

What we see with a 90-day at retail plan is an increase in generic utilization and an increase in the adherence, so both of those things lower the overall total cost for the payer.

So it's about lowering overall total costs.

Okay.

And just I guess one more kind of Walgreens specific question on this topic though.

Greg, are you seeing that by offering more people are more aware of the 90-day script, is this what is helping to drive some of your market share?

And is the belief that you can get this 90-day script at Walgreens but you can't get it at Joe's Pharmacy, is that part of the drive of where you are getting the incremental market share?

No.

No, not at all, Lisa.

I think that certainly by having a 90-day available and if others don't then it will grow our share, but my intent is not to have a 90-day retail prescription available only at Walgreens.

I think that the industry will see 90-day retail prescriptions become a norm for retail pharmacy, so therefore I am not about just only having 90-day retail prescriptions available at Walgreens.

I couldn't agree more.

I think it is going to become an industry standard and the reason is because it makes sense.

It makes sense; it's what payers and patients are going to want because it's going to give a better outcome in every way that you can measure.

I guess the one thing is with respect to the IMS market share data, remember the way they still state it is a 90-day is equal to one and a 30-day is equal to one, so you wouldn't be able to see that kind of trend in those numbers anyway.

But, again, I think it will become an industry standard because it's hard to argue with the logic of it.

And then -- I know I said it was the last question but just one more, Wade.

If we look at this from a cost perspective for Walgreens is it more cost efficient for you to fill a 90-day script?

When we think about profitability is it more profitable for you to fill a 90-day script or a 30-day script and do you believe that you lose any traffic by that person only coming in four times a year?

And I will stop there.

I guess I would say that it's -- again, and Kermit can talk about the actual fill, it doesn't take a lot more cost to fill 90 versus 30 but there sometimes is a pricing offset.

In the end though, by driving better adherence and all that, we can win, we can help people stay with their meds.

We can be successful that way.

So I think from that point of view it's a win.

I would also make the respect to people not coming in, a large number of people that come in to buy a script either go through the drive-through or they don't buy anything else anyway.

We learned with drive-through that it's not about how do we keep people captive in our store, it's about how do we give them what they want.

We put the drive-throughs in and once we put the drive-throughs in our business blossomed, even though some people thought that that might have pulled people out of the store.

If people want 90 versus a 30, if we give them what they want, we believe we will be rewarded over time in lots of ways versus just on particular trips.

So Kermit, do you want to add?

And I think -- Lisa, the only thing I would add to that is when we did our survey over two-thirds of the people who were getting 30-day chronic medications in our stores were very likely to switch to a 90-day quantity if they were aware of it.

So the people -- 95% of the people want choice.

They want to have the ability to make choice of where they get their 90-day prescription.

85% of the people in this survey felt like the face-to-face interaction with their pharmacist was important.

So much like we did when we put drive-throughs in we are giving the patients what they want when they want it and how they want it, so this is more about patient choice and giving patients what they want in a multichannel environment.

So you can get 30-day, you can get 90-day, you can get it -- we can ship it via our mail service or you can pick it up at our retail pharmacies.

Okay, great.

Lisa, it sounds like you struck a nerve with that question.

Thank you.

I guess I did.

Thanks very much.

Patricia Baker, Scotia Capital.

Good morning.

Two very quick questions.

First of all, Wade, both you and Greg referenced the real importance of driving private label.

Can you tell us what sort of progress you have made in the second quarter over second quarter last year on a 12-month rolling basis?

Have we seen an improvement in penetration?

I don't know that we have given the exact statistics.

As you know, our private label tends to be about 20% and we continue to increase that over time.

I guess the key thing I would say is we continue to strengthen the team.

We have got a very strong private label team.

Duane Reade had not only a strong team but they also had great tiered offerings, differentiated offerings in some categories, like food for example, where we were not as strong as them.

So I think really what I would say is the big story for us is to continue to enhance our capabilities, continue to fit out what I call our architecture in terms of the various peers and what the brand nomenclature is going to be like across the store, and we just see that we have really tremendous upside here.

Yes, Patricia, I would add to Wade I feel good with not only the team and the talent we put together, as Wade said, but also where we stand at this point in time.

We have got two opportunities here.

One we have got a very strong private brand already in over-the-counter cough and cold that type of product that we have the opportunity to just make it even better and drive that even greater.

We also have the under-penetration I have talked about before in consumables, which is where I think obviously the Duane Reade expertise with Joe coming out of Loblaws and the food business can help our existing team there tremendously.

So we feel we got good upside there.

Okay.

And presumably if you improve the architecture, etc., we should be able to see better profitability.

But over time the penetration should grow even (multiple speakers)?

A couple things.

Number one, as you know, it's more profitable than base.

Number two is executed well it's really differentiated (multiple speakers) versus other retailers.

So somewhat related, but not quite.

In your opening remarks, Greg, you talked about the pace of remodels of the Duane Reade stores is going to pick up in the second half.

Can you give us a little more color on that?

How much of a pickup and exactly how many stores you might be touching?

I think I will avoid giving numbers.

Patricia, I will say this, the reason we are picking up the pace is we are excited with what we are seeing.

I am sure, if you haven't gotten into a few of those stores you should, because you would understand exactly why we are excited.

We definitely think that we have got a tremendous opportunity in Manhattan.

Duane Reade has a tremendous footprint in the market.

The existing remodels are doing well, exceeding our expectation and so therefore it makes sense to increase the pace.

Are you making progress at improving their pharmacy because they would have been under-productive pharmacies?

You know, I think that is an opportunity for us that Kermit is working on.

We are in the process of -- some of the systems conversions right now are pharmacy systems which will -- once we get that completed that will allow us to be able to transfer prescriptions from a Duane Reade to a Walgreens across the country, which is one of the things that really set ourselves apart over the last decade was to be able to transfer scripts around.

So, yes, I think we are definitely going to be able to help them on the pharmacy side of the business, just as they brought a lot of value to us in other areas of their business.

Okay, thank you very much.

David Magee, SunTrust Robinson Humphrey.

Good morning, guys.

I guess just a quick observation and then a question.

You referenced earlier about the third quarter being sort of a tough comparison.

Now I recall that as being sort of a disappointing quarter.

I know gross dollars grew but everything else seemed to be below expectations for the third quarter last year.

In fact, the last two third quarters were down on a year-to-year basis.

So it seems like that in total it's really not that tough a comparison, but maybe -- that is the observation.

What I wanted to ask though is just about the gross margin visibility.

In the last couple quarters when you showed nice FIFO improvement you talked about some structural improvement with regard to promotions and marketing.

Are those still operative on a year-to-year basis and is that something that should benefit us here in the third quarter?

Yes, David, I will take the second one maybe let Wade go to the first one.

Yes, I think what we are doing with pricing and promotion and the work that Bryan and Kim are doing certainly will continue and get stronger.

I do think that, as was mentioned from an earlier caller, that certainly we are going to begin to see more and more commodity price, commodity increases and so forth that will challenge just a little bit going forward.

But that is exactly what we will have to do is continue to pass on what we can where it makes sense, stay competitive, drive private brand to balance it.

I think that the teams are getting stronger.

They are getting more focused on achieving that balance.

I guess what I would say with respect to the third quarter, I think the point we were making is that if you look at the back half of the year the gross profit is harder to cycle and the SG&A is easier to cycle and it comes back to that 100 basis point model.

What I would say also in the third quarter, I do recall we had some static in there.

I think half the quarter we had Duane Reade in and we also had, I believe, a tax adjustment from the healthcare reform, things like that.

So I think you have to weed all the way through it, but I think what we really wanted to convey is, again it's back to that structural framework, that construct of gross profit dollars and SG&A dollars.

The back half SG&A becomes easier, gross profit dollars become a bit more difficult, and just think about that as you get into your models.

Okay, and that is fair.

Thanks, Wade.

But the sales numbers also seems to me is sort of an easy comparison too.

Just another quick question.

What are you seeing right now with regard to your competition and the higher input prices?

Are you seeing them trying to hold a line or are you seeing any movement upward with regard to your peers?

David, maybe I will let Mark Wagner jump in.

I will get him a question here.

I would say that we are seeing kind of a mixed bag.

There are some out there that are holding and some that are taking.

But Mark do have any color?

That is right, Greg.

Hello, Dave.

We are doing competitive pricing every day out there across the United States.

We are looking at all of our competitors in all our different zones around the United States.

We are making pricing.

We take price increases, we take price decreases.

That is just the everyday nature of our business.

I would say that you are probably seeing a little bit more price increasing coming through, but at the same time I mean we are seeing some nice trends in our private brand too as people switch over to something a little more affordable.

So we are happy with the share increase we are getting and we are happy with the execution we are getting in stores on saying on top of the pricing.

Great, thank you.

Thanks, David.

That is all the time we have for questions today.

I would like to turn it back over to our speakers for any additional remarks.

Folks, that was our final question.

Thank you for joining us today.

As a reminder, we will announce March sales on April 5 and keep in mind that March sales will be negatively impacted by this year's later Easter which falls on April 24 compared to April 4 last year.

The Company will report combined comp store sales for March and April with the April sales results.

We will report third-quarter results on June 21.

Until then, thank you for listening and we look forward to talking with you soon.

That does conclude today's conference.

We thank everyone for their participation.