Kermit Crawford - President of Pharmacy Services Wade Miquelon - Chief Financial Officer and Executive Vice President Mark Wagner - President of Community Management Rick Hans - Divisional Vice President of Investor Relations & Finance and Assistant Treasurer Gregory Wasson - Chief Executive Officer, President and Director

Edward Kelly - Crédit Suisse AG David Magee - SunTrust Robinson Humphrey, Inc. Lisa Gill - JP Morgan Chase & Co Patricia Baker - Scotia Capital Inc. Mark Wiltamuth - Morgan Stanley Deborah Weinswig - Citigroup Inc Ann Hynes - Caris & Company Eric Bosshard - Cleveland Research

Good day, everyone. And welcome to the Walgreen Co. Second Quarter 2011 Earnings Conference Call. [Operator Instructions] And at this time, I'm pleased to turn the conference over to Mr. Rick Hans. Please go ahead, sir.

Thank you, Allen. 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 continued 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'm 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're also making the call available as 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 risks and uncertainty. Except to the extent required by law, we undertake no obligation to update publicly any forward-looking statements 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'll 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'll 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'll 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 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's up 8.9% from nearly $17 billion in the second quarter of 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. Running comparable store sales increased 4.3% in the quarter. As the economy slowly improves and our initiatives take hold, we're seeing increases in both traffic and basket size. We also saw a 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 the customers who are shopping later and later into the season. We also had another strong quarter in Pharmacy. Prescription sales and comparable stores grew by 3.9%, and comp scripts adjusted for Dayfall, grew by 4.4% over the same quarter last year. The cough/cold flu season added 110 basis points to our script comp. 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 one out of every five retail prescriptions for the first time in company history. For the flu season this year, when 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're 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 in 19 new stores, and transitioned 159 more stores to our CCR format. Through the end of the quarter, we've 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 comparison 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 in acquisitions like Duane Reade and CCR. More broadly across the company, we are focused on making cost control and continuous process improvement a way of life. That means moving away from cost savings through major restructurings to a discipline that ensures 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 remained soft, customers continue to look for value. We're 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's why we're working closely with the states and in doing so, helping them to understand two significant opportunities that we'll 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 at 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 cost, as a percent 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 to 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're 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're 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're also leveraging our brick-and-mortar assets through our e-Commerce business with the goal to become the leader in multichannel 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 an 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 retained 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 the Walgreen Co. An additional action we've 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've sold RT/DME [respiratory therapy/ durable medical equipment] operations in six states. Our goal is to ensure we effectively meet the needs of our customers, and that we're positioned for long-term success. We're also taking steps to further align our leaders and structure with our strategic goals. As you know, we recently announced Howe Rosenblum'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've 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's 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 operations of UAL's various award-winning loyalty programs. And finally, at Analyst Day, we stated our goal to become America's first choice for health and daily living needs, owning outright the strategic territorial well. This quarter demonstrates we are well on our way towards achieving that goal. We're pleased with our results this quarter. However, we remain cautious about the outlook, and confident in our direction. We will continue to differentiate ourselves to a laser focus on developing our core assets, our continued discipline on costs and a clear vision on how we can become my Walgreens for everyone in America. With that, I'll 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'll tie the quarter back to our long-term financial goals, and review our capital allocation decisions in the quarter, and how we're 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 initiatives. 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%. Looking at script number comps, our comparable prescriptions filled increased by 4.5%. Greg reviewed the key drivers of 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 three and a half years, while the corresponding blue line represents our two-year stacks front-end comp. You could see that our second quarter front-end comp 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 increased 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 90% prior to the onset of the recession, and that last year's second quarter appears to be the inflection point. Since that time, a combination of our own initiatives and a more stable economy had 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, our Pharmacy business. Let's look at the last 10 quarters of our script comparisons, 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 is 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 our 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've 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 net 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 will encourage you to focus more on pharmacy script comp then sales comp per se. Our gross margin as a percent of sales is 28.8%, steady with the year ago. The front-end margins increased, but were offset by a 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. The next chart illustrates our trends in front end and pharmacy margins, which we showed you in the last couple of quarters. And you can see that we have 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, were 8% on a GAAP basis versus 5.1% a year ago. And our two-year stack 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 stack 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 migration 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 of 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 a 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%. And 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 a 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%. 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 a strong progress against the 9.6% decrease a year ago. Shifting gears, I will now review our long-term financial growth goals, and look how we're 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 cost behind us, our 7.5% GAAP SG&A dollar growth through the first half of the year is on track with plan. With 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 in 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. As 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'll see our comparisons become easier. Looking at gross profit dollar growth by quarter this year versus last year, we see 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 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's 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're seeing the results of those investments in both our front end and pharmacy numbers for this quarter. Our second is investing 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. I just ran you 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 stocks, and we're 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%. So 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'm 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] We will take our first question from Edward Kelly at Crédit Suisse. Edward Kelly - Crédit Suisse AG: First question for you on the gross margin, I guess it wasn't quite as strong as most of us have expected, maybe we were just too optimistic. But could you talk a little bit about how the margin played out versus your expectation this quarter, particularly on the front end? And then I know you mentioned in the press release the impact of higher commodity prices, can you just explain that a little bit in a little bit more detail?

Yes, it's Greg. I'll 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 our managing our front-end margin, especially in this environment of commodity prices increases. I think we're doing a good job continuing to balance price and promotion, working for supply chain cost and so forth to reduce our cost of goods. 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, February is exactly pretty much what we planned for. And we certainly have to continue to manage to get there, and predictable reimbursement from our payers.

Yes, I'll just add on here. I think that we feel very good about our gross margins. I think what we're really focused on again is gross margin dollars, and trying to make sure to 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 feed stocks will funnel through over time. I think we'll be very -- we'll be ready to manage it when that comes, and there'll probably be other opportunities to provide value, and private label and other things as well. So again, I think I'd encourage you to keep focusing on gross profit dollars, in particular, against that construct we laid out of SG&A gross or SG&A dollars. Edward Kelly - Crédit Suisse AG: Okay, and just on the inflation front, everyone out there on the CPG [consumer packaged goods] side is talking about raising prices. So it seems like we're going to see more of it. I would assume that you've 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're going to have to focus on extremely well going forward. As you said, we're going to continue to see higher commodity prices coming through, but we've 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 make sure we're still providing the right value. That's why I talk about time and time again that retail is really all about balance, and making sure you're swinging doors at the same time, creating value. And so I think our convenience, as we've talked about before, allows us to some opportunity to get the delta there over others. And 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're going to have to be focused.

We'll use it opportunistically to drive our private label even harder if need be. We'll make sure that we have key price points versus competition. We'll make sure that our KBIs [key buying influence], the most important items we have, are priced right every day. So I think we'll be able to manage it very effectively, but I think it also gives rise to opportunity. Edward Kelly - Crédit Suisse AG: Okay, and just to follow-up on the gross margin question. How do we think about the third quarter now? I mean your comparison is particularly easy. Maybe you could remind us of why that's so. I mean, I know last year's third quarter on the Pharmacy side was a tough quarter. Certainly, you cycled back in a pretty positive way and there’s very good potential to see a pretty strong gross margin quarter again. I think that's how we're all thinking about it. So maybe you could help us as to whether that thought process is right or not.

A couple of things, right, is there's a lot of -- last year, actually, if you look at our back half gross profit dollars, they were fairly very strong. And that's for a couple reasons, number one, is we have the gross profit lift from Duane Reade, but we also were cycling the year prior, above [ph] some closeout and other 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 lost the mix effects from seasonal and other things. I think I'd really kind of just trying 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. Edward Kelly - Crédit Suisse AG: Maybe a bit more similar to what we have seen play out this quarter as opposed to what we've seen in prior quarters?

I would just say there just a lot of moving parts quarter-to-quarter, and still a lots of things, not only seasonality, business mix, changes in plans, et cetera. But again, I think that we feel that our goal of making sure we have 100 basis points or more over time is the right goal, and the goal that hopefully, we should be able to achieve.

And next, we'll take our next question from Deborah Weinswig with Citi. Deborah Weinswig - Citigroup Inc: Great, I'm 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 regard 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?

Yes, Deborah, maybe I'll take that. Yes, there's absolutely a change in focus and as I've talked about, I think we've 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, could be the biggest by-product of that initiative going in the future. So yes, I think we have folks that are focused in 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's no doubt it's in our DNA. We think there's more opportunity, and we're going to go after it.

I think, the way -- and probably, the big difference is rather from sort of cost cutting or restructuring, which we went through the past couple of 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 in doing new ways to drive our business and to manage our costs, as we would on top line growth. And I think that's the real kind of mindset difference. Deborah Weinswig - Citigroup Inc: Okay, and then also, with over a 20% market share in Pharmacy, who do you think you're gaining market share from? And with the investments you've made in your business, do you expect your share gains to accelerate going forward? And how important have your file buys been to the share gains?

Well, I think, Deborah, we're 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 has done a great job with improvement in service levels and customer sat [satisfaction] within our scores. So I think we'll continue to execute, continue to gain share, especially if indeed the reimbursement environment gets a little more challenging, there'll 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 continue to grow share. Deborah Weinswig - Citigroup Inc: And you found it broadly across the U.S.?

Yes. As I said, it may vary somewhat by region, but for the most part, yes. Deborah Weinswig - Citigroup Inc: Okay, and then last question, I believe Kim Feil joined the company in September '08 as your Chief Marketing Officer and has obviously made a significant impact. What was it that made you reach out to Graham Atkinson for the role of Chief Customer Experience Officer? I believe you're the only retailer that I know that has a role like that in your company, which should obviously set you apart from your peers.

Yes, I think you're right. Kim did start with us a couple of years ago. Kim has done a fantastic job in taking our organization from what I call good advertiser product to a world-class marketing organization. She’s done exactly what we wanted her to do and continue to build that. I think what Graham brings to us is just flat out dead 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's what he's focused on, and 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.

And next, we'll take a question from Eric Bosshard at Cleveland Research Company. Eric Bosshard - Cleveland Research: 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 have a year-on-year, probably our biggest step down we ever experienced through a variety of things. Things like AWP [average wholesale pricing], a few other changes, a few issues, say, we have gone through 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're not seeing anything in that magnitude for sure. So there's a little bit of pressure coming at us because generics are a little lighter than year prior. But overall, a little bit, not overly significant. Again coming into November, December next year in our 2013, we'll start to see a big generic wave, and that's going to be helpful then as well. So a little bit of pressure year-on-year, but not the kind of pressure we saw the year prior.

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

And Eric, this is Kermit. One other thing is that the step down this year is still -- there's a step down this year compared to last year. And we do expect to see that grow in 2012 and even more in 2013.

And one thing I'd also share though is Kermit's team is also doing a lot of work to continue to reengineer our cost to fill for deleveraging new prescribe, our central flow capabilities, other streamlined processes. So we work it from both ends to make sure that we get to the best overall gross and net. Eric Bosshard - Cleveland Research: And then a follow-up on the gross margin performance and outlook that 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'm just trying to figure out what side of this you're 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, right, 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 you might have an inventory LIFO hit. So I think the key thing for us is -- I'd be less concerned about what the LIFO movement is because over time, it doesn't move that much, and really more focused on whether it was sustainably over time able to get our portfolio pricing up to the level we need to for aggregate inflation, and I think that we're pretty good at doing that.

Yes, Eric, I think -- and Wade alluded to, I think, 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 help offset it, and we've got to be laser-focused on both of those areas to achieve the right balance. And I think with our opportunity to drive private brand, we feel pretty good about it.

And next, we'll take a question from Ann Hynes with Caris & Company. Ann Hynes - Caris & Company: I just want 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, I guess, 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 for annual -- if you annualize it, you're still growing gross profit over SG&A, it just reverses and it's a timing thing?

I think just what I mentioned, sorry and I apologize if I wasn't clear, but I think what I mentioned meant to imply was that a, it is a long term goal, right, so it's year-by-year, et cetera. And that 2012 and '13 would probably be easier than 2011 to hit it because of all of the trends, generics, et cetera, but that doesn't mean that we're not shooting for that goal this year, that we think we can't achieve it. Through the first few quarters, I think we've got about 130 basis point average. We're trying to build our business around this to overtime sustainably hit it. But I think the impression I meant to give is that it would just be easier in '12 and '13 than '11, but it doesn't mean that '11 is still not our goal. Ann Hynes - Caris & Company: 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, for sure, and there are still unknowns, things like AMP and other things. We just don't know yet. But again, this is what we're going to target to do. And again, we encourage you not to just judge it by any one quarter, but kind of look at the rolling effect of where we're taking our business over time. Ann Hynes - Caris & Company: , All right, great, and just my second question, was around Medicaid. Do you have any incremental detail you can share about AMP and timing? And 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 for Medicaid pricing in the second half would be great.

Yes, 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 Medicaid, again, same thing, we work with each individual state individually to manage fair and acceptable reimbursement as well as additional solutions. And as I said in my script, one of the things that we're encouraged by is that I think there's a lot we can do to help states with. And first and foremost, is making sure they do understand that the generic wave and the compliance adherence of generics is going to a huge positive for them going forward. Secondly, we've got a lot of solutions that we can talk to them about regarding the use of our retail clinics to offset medical costs. So there's no doubt they're going to be continued to be focused on reducing costs as everyone is in this environment. And we think we're actually positioned to help bring additional solutions.

And next, we'll take a question from Mark Wiltamuth of Morgan Stanley. Mark Wiltamuth - Morgan Stanley: Hi, good morning. I 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 back end of the house. Can you talk about how you're positioned for delivering cost saves in the back half? And then second question for you is what's 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 saving costs, around our TCRx or what we call our transformation community pharmacy, we are on pace to meet our 2011 goal from our Rewire. So I still feel very good about the second of the year and the pace we're on to meet the cost savings associated with the Pharmacy. When it comes to our flu program, our flu program, I mean, we still are going to remain aggressive in our flu program, as well as in our broader vaccine programs. But we clearly established Walgreens as the leader in the flu shot market. And with over 26,000 certified pharmacists in United, we've proven that we can train our entire workforce. Even with the lack of demand this year in our flu shots, given 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 don't make money when we sell flu shots. So we feel very comfortable about the flu and our other vaccinations. But to give you another example is you may have heard about the whopping cough that was broken out in California and Indiana, and we administered over 19,000 DPT vaccinations. So we're 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. Mark Wiltamuth - Morgan Stanley: I guess what I'm 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 kind of 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 think over time, it's going to be easier and easier to align those two.

Yes, Mark, Greg, I'd just say this, certainly, this year, we learned a lot, and there's two things. I think the consumers definitely value our convenience to get flu shots, so the demand is there. We could expect that continue to grow. And second, we certainly know how to work with our Pharma supporters to manage the inventory a little better next year. So we feel good we'd be able to manage their inventory, as well as the amount of -- and still grow share. Mark Wiltamuth - Morgan Stanley: And Greg, just big picture question for you, do you feel you have everything you need now in terms of the portfolio, now that you've sold off WHI, and you've got the specialty in 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's a good question. It's awkward, I think I'm probably naive to say, I think we've got everything we need. I think as we continue to grow, there's always gaps. There's 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'm really enthused with and feel good about is the focus because there's no doubt, and I've said this several times. Our center of gravity are those drugstores, and those drugstores are the center of communities across the country. And more and more focus we get on providing additional services, products and solutions to communities in need, the better off we'll be. So I feel good with some of the divestitures that we've 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're going to continue to grow specialty and 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've got right now.

And next, we'll got to Lisa Gill with JPMorgan. Lisa Gill - JP Morgan Chase & Co: I thought it was interesting the initiative around educating on 90-day scripts, can you maybe just talk about the relationships you have here with PBMs or managed care companies around the 90-day scripts. Are you getting buy-ins from them around the 90-day, or are they giving you pushback because they're trying to promote their own mailer facilities?

Yes, Lisa, a little of both, which doesn't concern me because frankly, the consumer is voting, and the consumer is basically saying, hey, 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're 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're getting buy-in from the industry is we're not looking for 90-day supplies at retail to replace the mail benefit. We're looking forward to add to an existing benefit, and it's hard for anyone to debate the facts and the results of adding a 90-day retail benefit to an existing mail benefit. Then you get a 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 there’s probably -- 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 to 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 outcome to show when you add a 90-day 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 and 90-day generics is driving higher utilization, it's going to lower the overall costs for the payer. Lisa Gill - JP Morgan Chase & Co: So Kermit, are you giving better pricing now? I mean, 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 [Pharmacy Benefit Manager] 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 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's also good for our margin, good for the payer and good for the patient in a way which makes a 30-90 a win-win-win for everyone.

Lisa, Greg. I want to pile on here a little bit. So 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 our retail pharmacy within the community. Same way you can look at the 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 there may be competitive items. And they also pay for the convenience, whether it's an additional co-pay or half a co-pay for it 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's what it requires.

And Lisa, the only thing I would add is that this is about lowering the overall total cost. And what we've seen with the 90-day retail plan is an increase generic utilization and an increase in the adherence. So both of those things lower the overall total costs for the payer. Those are about lowering our overall total costs. Lisa Gill - JP Morgan Chase & Co: Okay, and I guess one more kind of Walgreen-specific question on this topic though. I mean, Greg, are you seeing that by offering more, people are more aware of the 90-day script, is this what's helping to drive some of your market share, 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're getting the incremental market share?

No, not at all, Lisa. I think that certainly, by having the 90-day available and if others don't, then we're going to -- it'll 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. And so, therefore, I'm not about just only having a 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, right? 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 it. I guess the one thing is with respect to kind of the IMS market share data, remember, the way they still see it is that 90 days is equal to one, and the 30 days 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. Lisa Gill - JP Morgan Chase & Co: 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, again, I mean, Kermit can talk about the actual fill. I mean 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 of that, again, 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 with respect to people that are coming in, a large number of people that come in to buy our script either go through the drive-thru, or they don't buy anything else anyway. We learned with drive-thrus that it's not about how do we keep people captive in our store. It's about how we give them what they want. We put the drive-thrus in and once we put the drive-thrus, then our business blossomed. Even though some people thought that, that might have pulled people of the store. And if people want a 90 versus a 30, if we give them what they want, we believe we'll be rewarded over time in lots of ways versus just on particular trips. So Kermit, do you want to add to that?

And I think Lisa, the only thing I'd add to that is when we give our survey, over 2/3 of the people who were getting 30-day product 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 thought that the face-to-face interaction with their pharmacist was important. So much like we do when we put drive-thrus in, we have given 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 multi-channel 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.

And next, we'll move on to Patricia Baker with Scotia Capital. Patricia Baker - Scotia Capital Inc.: 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've made in the second quarter over second quarter last year on a 12-month rolling basis? Have you seen an improvement in penetration?

Well, I don't know if we can give the exact statistics. As you know, our private label tends to be about 20%. We continue to increase that over time, I guess the key thing I would say is we continue to strengthen the team. We've got a very strong private label team. Duane Reade had, not only a strong team, but they are also had great tiered offerings, differentiated offerings in some categories like foods, for example, where we were not 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 fill out what I call our architecture in terms of the various tiers 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'd add, 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've got two opportunities here. One, we've got a very strong private brand already, in over-the-counter cough and cold, that type of product, that we have the opportunity just to make it even better and drive that even greater. We also have the under penetration I've talked about before in consumer consumables, which is where I think, obviously, the Duane Reade expertise, deal coming out of Loblaw's and the food business can help our existing team there tremendously. So we feel we got good upside there. Patricia Baker - Scotia Capital Inc.: Okay, and presumably, if you improve the architecture, et cetera, we should be able to see better profitability but over time, the penetration should grow even...

Couple of things, number one, as you know, it's more profitable than base and number two, if executed well, it's really differentiated [ph] just for other retailers too. Patricia Baker - Scotia Capital Inc.: Somewhat related but not quite, in your opening remarks, Greg, you talked about the pace of remodels of the Duane Reade stores 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?

Yes, I think I'll avoid giving numbers, Patricia. I will say this, the reason we're picking up the pace is we're excited with what we're seeing. And I'm sure if you haven't gotten into a few of those stores, you should, because you'd understand exactly why we're excited. So we definitely think we've got a tremendous opportunity in Manhattan. Duane Reade has a tremendous footprint in the market. The existing remodels are doing well, exceeding our expectations and so, therefore, it makes sense to increase pace. Patricia Baker - Scotia Capital Inc.: Are you making progress at improving their pharmacy because they would have been under-productive pharmacies?

Yes, I think that's an opportunity for us that Kermit's working on. We're in the process of some of the systems conversions right now. Our 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, and which is one of the things that really set ourselves apart over the last decade, was to build a -- to transfer scripts around. So yes, I think we're going to build 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.

And we'll take our final question from David Magee of SunTrust Robinson Humphrey. David Magee - SunTrust Robinson Humphrey, Inc.: 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, and I recall that as being sort of a disappointing quarter. And 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's the observation yet -- what I wanted to ask though was just about the gross margin visibility. In the last couple of 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, Dave. I'll take the second, and Wade will get the first one. But yes, I think what we're doing with pricing promotion and the work that Bryan and Kim are doing, certainly, we're continuing to get stronger. I do think that as was mentioned from an earlier caller, that certainly, we're going to begin to see more and more commodity price -- commodity increases and so forth that will challenge us a little bit going forward. But that's exactly what we will have to do is continue to pass on what we can, what makes sense, stay competitive, drive private brand to balance it. So I think that the team is getting stronger. They're getting more focused on achieving that balance.

I guess, like Greg say, with respect to the third quarter, I mean, I think the point we're 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 have some static in there, I think half the quarter, we had Duane Reade in, then we also had, I believe, a tax adjustment from the healthcare reform, things like that. So I think you have to read all the way through it, but I think what we really want to, I guess, convey is again is factor that structural framework, that construct of gross profit dollars and SG&A dollars, and at 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. David Magee - SunTrust Robinson Humphrey, Inc.: Okay, and that's fair, but the sales numbers, also it seems to me, is sort of an easy comparison too. But 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 the line, or are you seeing any movement upward with regard to your peers?

Yes, David, maybe I'll let Mark Wagner jump in, get him a question here. But I would say that we're seeing kind of a mixed bag. There's some out there that are holding, and some that are taking, the market...

Yes, that's right, Greg. I mean, we're doing competitive pricing everyday out there across the United States. I mean, we're looking at all our competitors and all our different zones around the United States. We're making pricing. We take price increases. We take price decreases. I mean it's just the everyday nature of our business. I would say that you probably see a little bit more price increasing coming through but at the same time, I mean we're seeing some nice trends in our private brands too as people switch over to something a little more affordable. So we're happy with the share increase we're getting. And we're happy with the execution we're getting in the stores, and staying on top of the pricing.

That's all we have for the questions today. I'd 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'll announce March sales on April 5. 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.

And that does conclude today's conference. We thank everyone for their participation.