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Walgreen working on store changes
reuters.com
By Jessica Wohl

CHICAGO (Reuters) - Walgreen Co (WAG.N: Quote, Profile, Research, Stock Buzz), under pressure to define its strategy after a failed acquisition bid, is working on changes to its drugstore format and has hired consultants Booz Allen Hamilton, the company told Reuters on Tuesday.

Booz Allen consultants have been working at the company's Deerfield, Illinois headquarters, a Walgreen spokesman said. He declined to discuss details, but said the company would unveil plans to improve store operations during an October 30 analyst day.

The company said on Tuesday it would buy McKesson Corp.'s (MKC.N: Quote, Profile, Research, Stock Buzz) specialty pharmacy business for an undisclosed sum, a move that helps expand its health services into areas such as oncology, multiple sclerosis and reproductive health.

Walgreen could also introduce a loyalty card, spruce up its stores or do more to promote its lower-priced generic plan to help boost traffic and sales as rival CVS Caremark (CVS.N: Quote, Profile, Research, Stock Buzz) ratchets up competition, analysts said.

CVS has raised the stakes for Walgreen with its entry into pharmacy benefits in March 2007, when it bought Caremark. Just this month, CVS won out over Walgreen in its acquisition of Longs Drug Stores Corp (LDG.N: Quote, Profile, Research, Stock Buzz).

Walgreen Chief Executive Jeffrey Rein abruptly left the company on October 10, two days after it withdrew an unsolicited bid that was repeatedly rebuffed by Longs.

Edward Jones analyst Stephanie Hoff, who has a buy rating on Walgreen, wants the company to say how it will navigate a current slowdown in prescription trends, drive traffic into its stores and keep an eye on costs.

"What we'd like to hear is really just a focus on better blocking and tackling," she said. "If they could address those issues, and address them compellingly, I think there's a lot of room for the stock to move higher."

Walgreen unexpectedly posted its first quarterly profit decline in almost 10 years last October and has since tried to address investor concerns more directly, planning its first major analyst meeting for the end of this month.

"We will be talking about our store plans and changes we're looking at making," the Walgreen spokesman said of the October 30 meeting.

Meanwhile, the pharmacy industry as a whole is grappling with Wal-Mart Stores Inc (WMT.N: Quote, Profile, Research, Stock Buzz) and others offering cheap generic drugs and in-store health services. An economic slowdown has U.S. consumers filling fewer prescriptions to save money.

Walgreen shares have shed about 35 percent since the start of the year, compared with a 27 percent drop for CVS.

MARKETING MOVES

Among other changes, Walgreen added a chief marketing officer, Kim Feil, in late September. She is among those slated to speak at the upcoming meeting. Alan McNally was named chairman and acting CEO and the company's board is looking internally and externally for a permanent CEO.

Some say Walgreen could give details of a loyalty card, a plan it has been considering.

Rival CVS has had a loyalty program for years and outlined its vision for providing health services for some time.

CVS's purchase of Caremark highlighted its strategic direction, while the strategies at Walgreen and smaller player Rite Aid Corp (RAD.N: Quote, Profile, Research, Stock Buzz) are less clear, said Sarah Henry, an analyst at Sovereign Asset Management, which owns CVS shares.

"I think with Walgreen and Rite Aid it's becoming more and more evident that the business is a mature business and it's consolidating quickly, so there's a lot of opportunity for both companies," Henry said.

Henry said she wants to hear the potential uses of Walgreen's capital since it has cut back on store openings.

"I don't think they need to come out with a big shocking, reinventing-the-wheel thing," Henry said. "'What are they going to do with the cash flow that's not going to organic store growth' is the question, even in the near term or the intermediate term."

AN OUTSIDE CEO?

Walgreen is known to name CEOs from within the company, and President and Chief Operating Officer Greg Wasson is seen by many as a front-runner. However, Walgreen may have to pick an outside candidate to show it is willing to shake things up.

"There's a little risk to it, of course, because this has always been a company that has promoted the CEO from within and the CEO has always been a pharmacist, so there could be some cultural effects, negative effects, of bringing in somebody from the outside," said Hoff. "But I think on a net basis it probably would be smarter for them to do that."

Shares of Walgreen slipped 9 cents to $24.53 amid a broad market decline after rising as much as 2 percent earlier in the session.

(Reporting by Jessica Wohl; Editing by Lisa Von Ahn and Gunna Dickson)