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CVS earnings set record

BY Antoinette Alexander

WOONSOCKET, R.I. —For CVS Caremark, 2007 marked a milestone year as it integrated the Caremark business and overachieved initial synergy targets, added $2.1 billion in new PBM business for 2008, opened more than 300 MinuteClinics and launched a $5 billion share re-purchase program. Through it all, CVS management kept their eye on the ball and closed out the year with nearly double fourth-quarter profits and generated $2 billion in free cash flow.

“2007 was an outstanding year for our company across all quadrants of our company, with record sales, record earnings, and I expect 2008 to be another outstanding year with solid revenue and earnings growth across all of our businesses,” Tom Ryan, chairman, president and chief executive officer, told analysts during a conference call.

While the retail side of CVS’ business proved strong, the PBM segment performed exceptionally well. Not only did pro forma sales rise nearly 13 percent but the 2009 selling season is off to a decent start with 25 percent of expiring business renewed, the company noted, adding that cost synergies are likely to exceed $700 million in 2008—about $50 million above previous projections.

“The operating model is not yet proven, but with every passing quarter, we are moving closer to its acceptance, by payors, competitors and investors alike, as a viable alternative to the pure play approach,” stated Goldman Sachs analyst John Heinbockel in a research note.

The healthy performance of CVS’ PBM business likely eased some concerns on Wall Street given Wal-Mart’s announcement in January to offer its own PBM services to “select employers”—news that Ryan downplayed as details of the venture are still sketchy.

Ryan also reiterated that it is using its PBM offering to develop new services for its MinuteClinic business, which the company expects to turn profitable in 2009. Ryan did not disclose details, but did say the companyplans to add new services in 2008 and open between 200 to 300 MinuteClinics in both existing and new markets. The company ended the year with 462 clinics in 25 states.

Meanwhile, on the retail side of the business, comps in the former Osco/Sav-on stores, in both front-end and pharmacy, outpaced core stores for the fourth quarter.

“Southern California, which is the second-largest drug store market in the country, is now the largest sales-producing market in our chain,” Ryan said. “So I am very pleased with the progress of the acquired stores and we expect continued progress on sales and margins in these stores.”

Looking to 2008, CVS executives and industry observers remain optimistic.

“A better top-line outlook was one of the more pleasant surprises imbedded within the 2008 guidance,” stated Heinbockel. “Management expects CVS sales to rise 7 percent to 10 percent, powered by 4 percent to 7 percent comps and 3 percent square footage growth.… In addition, the company noted that, because of a larger-than-expected pickup in PDP-covered lives (and revenue), Caremark would only lose about $1 billion in net business from last year’s contract non-renewals versus an expected $2 billion.”

For CVS, all signs not only point to growth but, perhaps more importantly, to the successful dynamics of a new, game-changing company.

“We are a different company than we were a year ago. We are a pharmacy healthcare service company,” Ryan said.

For specifics on CVS’ fourth quarter and year-end numbers, visit www.drugstorenews.com.

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Report says Tesco looking at expansion in Chicago

BY Doug Desjardins

CHICAGO Tesco is looking to roll out Fresh & Easy Neighborhood Markets in the Chicago area, according to a report in the Chicago Sun Times.

The newspaper attributed the report to a “knowledgeable source” and said Tesco could offer the Chicago area something “unique because of its strong offering of prepared foods, packaged perishables and selection of produce, meat and bakery.”

Tesco has not commented on the report and has said it plans to expand on the West Coast in 2008, opening stores in California, Nevada and Arizona. The chain opened its first store in December and plans to have up to 50 Fresh & Stores open by the end of February.

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Lubin promoted to Walgreens vp and new second position

BY DSN STAFF

DEERFIELD, Ill. Walgreens today promoted Steven Lubin to divisional vice president and the new position of general manager of marketing for non-mainland operations. In his new role, Lubin will ensure the company’s marketing meets the needs of customers in Puerto Rico and Hawaii.

As general manager of marketing for Puerto Rico, Lubin spent the past three years living on the island. He is relocating back to the company’s Deerfield, Ill., headquarters for his new duties.

“Steve was a huge asset in Puerto Rico as we worked to better meet the unique needs of our island customers,” said Walgreens chairman and chief executive officer Jeffrey Rein. “He also was invaluable as we opened our first Hawaii store last year, quickly grasping what Hawaiian customers want in a drug store and working with a Walgreens team to buy from many local vendors. Steve’s a big part of our early, strong success in Honolulu.”

Lubin joined the company in 1970 as a stock clerk in Chicago while attending college. He managed several Chicago-area stores before moving into Walgreens’ purchasing department in 1980. He was promoted to a divisional merchandise manager in 1988 and to general manager of marketing for Puerto Rico in 2004. 

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