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To: Victor Lazlo who wrote (91140)	1/15/2000 6:54:00 PM
From: Glenn D. Rudolph	Respond to of 164684

yikes. not much hope there, is there? Victor, I was going to post the positives next but I am still looking. Prescription sales were up in December due to a large outbreak of the flue but front store sales dropped siginifcantly. Is that a positive ? LOL.

To: Victor Lazlo who wrote (91140)	1/15/2000 6:58:00 PM
From: Glenn D. Rudolph	Read Replies (1) \| Respond to of 164684

Investment Highlights: ú The inventory yield turnaround in the drug retailing sector stalled in the third quarter as companies stocked up in anticipation of strong holiday/ Y2K sales. Inventories increases for the retailers in Q3 were 14%in 1999 versus the 10% average of prior years. ú The strong seasonal, flu, and ?Party and Panic? sales in December should have cured this. ú The sizeable opportunity to improve inventory productivity is one major factor behind our belief that high teens earnings growth can be sustained in the medium term for CVS (CVS/B-1-1-7/$38). ú Reimbursement rates on third party plans have stabilized; this in turn stabilizes the numerator in the inventory yield calculation. ú The 11,000-15,000 sq ft, corner of ?Main and Main? stores that retailers are opening have higher inventory productivity, after initial dilution. ú Technology development is a focus again. New promotional forecasting software should improve sell-throughs while supply chain reengineering projects take retailers one step closer to the still distant ?just in time? replenishment goal. CVS is now focused on closing the gap with Walgreen. ú We focus our investment recommendations on CVS and Walgreen (WAG/A-2-1-7/$30.13) who have demonstrated improving returns on inventory and overall capital employed this year. Eckerd and Rite Aid (RAD/C-3-2-9/$8.00) have yet to overcome integration problems in their big acquisitions. ú Inventory yield in the drug retailing sector has not been as accurate a predictor of relative performance. In the past, we have found a strong correlation between inventory yield rank and the degree of outperformance each retailer experienced. ú Our favorite pick in the sector, CVS, consequently is the one we believe has the greatest potential to improve inventory yields, both sequentially and at the absolute level. Bulletin United States Retailing 13 January 2000 Mark Husson First Vice President Sandhya Raju Assistant Vice President US Drug Retailers Inventory Yield Stalled Temporarily; CVS, WAG Poised To Perform Well Post Holiday Sales Reason for Report: Industry Update Merrill Lynch & Co. Global Securities Research & Economics Group Global Fundamental Equity Research Department RC#10201307 Industry