Moody's: Walgreen outlook negative

Moody's Investors Service said it confirmed Walgreen Co.'s issuer rating at Aa3 and its short-term rating at Prime-1.

This concludes the review for downgrade that began on July 6, and the outlook is negative.

The agency said the confirmation reflects the strength of the Walgreen franchise, a financial policy that has so far remained sufficiently measured relative to operating cash flow and Moody's expectation that key credit metrics will therefore not deteriorate.

The negative outlook reflects the agency's concern that Walgreen's financial policy could become more aggressive as far as shareholder returns and acquisitions at a time when cash expenditures for new stores are increasing, the risk that softer performance in the last quarter of the August 2007 fiscal year could continue and credit metrics that are somewhat weak.

Walgreen's Aa3 issuer rating derives support from its strong nationwide franchise in a segment of retailing that has limited seasonality and demand volatility, as well as the company's successful track record of managing growth through superior real estate selection and strong supply chain management, Moody's said.

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