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CVS’ MinuteClinic sees 18% revenue growth during Q3

BY Antoinette Alexander

WOONSOCKET, R.I. — CVS Caremark posted “solid” results during its third quarter, and its MinuteClinic business was no exception.

During the quarter ended Sept. 30, the retail clinic business enjoyed revenue growth of 18%.

From a comp perspective, MinuteClinic has, most recently, been comping in the teens to low 20s, Dave Denton, EVP, CFO, controller and chief accounting officer, told analysts during the company’s third-quarter conference call Tuesday morning.

Meanwhile, the company continues to see a high rate of adoption from health plans and government-sponsored programs.

During the quarter, the company opened 42 net new clinics including clinics in two new states — Hawaii and Louisiana. It ended the quarter with 726 clinics in 27 states and the District of Columbia.

“Our long-term goal is to create a platform that supports primary care by providing integrated, high-quality care that is convenient, accessible and affordable,” said CVS Caremark president and CEO Larry Merlo.

 

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CVS’ Merlo: Health reform to benefit business in 2014

BY Antoinette Alexander

WOONSOCKET, R.I. — CVS Caremark, which posted solid third-quarter results across its enterprise, is well-positioned to benefit from the rapidly changing healthcare environment. That was a key message that CVS Caremark president and CEO Larry Merlo had for analysts Tuesday morning during the company’s third-quarter conference call.

“The healthcare environment is changing rapidly, and there are certainly a number of moving parts from the Patient Protection and Affordable Care Act to the private exchanges. Collectively, we expect changes within this environment to be a net positive for our business in 2014,” Merlo told analysts.

To drive growth and take advantage of the evolving landscape, the pharmacy retailer will participate in coverage expansion in the public exchanges, and also will participate in the private exchange market for both active employees and retirees.

He noted that, as the No. 1 PBM player in the managed Medicaid space, the company also is well-positioned to gain share through Medicaid expansion.

What will this mean for PBM margins? Merlo acknowledged that while it does expect to see some churn in PBM lives and perhaps some margin compression, it expects this to be mitigated by such cost-management tools as narrow networks, its Maintenance Choice offering, etc. The bottom line: The company does not expect a material impact on PBM margins in the “foreseeable future.”

“In addition to tighter pharmacy management tools, we also expect share gains from both market expansion and market churn as an additional lever to help offset PBM margin compression,” Merlo added.

Another boon for CVS Caremark is that its opportunities as it relates to healthcare reform extend beyond just its PBM business.

“Leveraging our retail footprint, we can support health plan marketing initiatives ranging from limited pilot marketing programs to full-scale educational programs. In fact, over the next six months we expect health plans to host more than 6,000 marketing events in more than 1,000 of our stores across 20 states.”

Strong results drive revised 2013 guidance

For the quarter ended Sept. 30, net revenues rose 5.8% to $32 billion compared with the year-ago period.

Net income totaled $1.25 billion, or $1.02 per share, compared with $1 billion, or 79 cents per share, in the year-ago period. Excluding a gain from a legal settlement, adjusted earnings per share rose 23.9% to $1.05.

Revenues in its pharmacy services segment rose 7.8% to $19.5 billion in the quarter. The 2014 selling season proved “strong” for its PBM business as it has completed 75% of renewals to date and has a 96% retention rate, Merlo told analysts. Net new business totaled about $1.8 billion.

Within specialty pharmacy, revenues rose about 22% year over year. Driving the growth: drug price inflation, utilization, new product launches and new PBM clients.

It is interesting to note that, to further differentiate its offerings, the company is leveraging its brick-and-mortar stores to pilot a specialty pharmacy delivery offering.

“What we’ve been able to do is take all of our specialty capabilities and connect to our retail stores. So, now members that want to get access to specialty medications can go in any one of our 7,400 stores as we roll this program out next year,” Jon Roberts, EVP and president of CVS Caremark Pharmacy Services, told analysts during the call. “We will leverage all of the back-end clinical capabilities, the billing capabilities, the fulfillment capabilities and then we will be able to deliver that prescription either to the member’s home — like what happens today with specialty pharmacy — or deliver it to their local CVS/pharmacy. Similar to Maintenance Choice, half of the people want to pick up their specialty prescription in their CVS local store and the other half want it mailed to their home.”

Meanwhile, the retail business posted a revenue increase of 5% to $16.3 billion. Same-store sales rose 3.6%. Pharmacy same-store sales increased 5.7%, while front-end same-store sales slipped 1% due to softer foot traffic. The company noted that, despite slower foot traffic, both front-store basket size and front-store margin improved “modestly” during the quarter.

Given the company’s strong operating results to date and its outlook for the remainder of the year, the company has raised and narrowed its earnings guidance for 2013. It now expects adjusted earnings per share to be between $3.94 and $3.97 in 2013. This compares with its prior guidance of $3.90 to $3.96 per share.

“We are pleased with our strong third-quarter results and optimistic about the outlook for this year and next. We see the evolving healthcare environment as an opportunity for growth, and we believe we are very well-positioned to gain market share across the enterprise,” Merlo said.

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Twice bitten: Two negative experiences in any channel will make shoppers dump a retailer, survey finds

BY Alaric DeArment

CHELMSFORD, Mass. — Negative experiences in one shopping channel can influence consumers’ perceptions of other channels too, according to a new survey.

The survey, "Holiday 2013: Top Trends to Watch," commissioned by Kronos and conducted online by Harris Interactive, found that 68% of Americans report that a negative experience in one channel can influence how they perceive physical stores, online, mobile, phone centers and catalogs. The survey was conducted from Sept. 26-30 among 2,003 adults.

"The margin of error when it comes to customer satisfaction and brand loyalty is continually shrinking, and the new survey puts some hard numbers around this disposition in retail," Kronos director of retail and hospitality practice Liz Moughan said. "The combination of the government shutdown, a millennial population to appease and the need to get a handle on omnichannel could make this holiday season a difficult one for many retailers. Fortunately, many have embraced the power of omnichannel and are well-positioned to capture the wallets of consumers not just during the holiday season, but keep shoppers loyal to their brand into the future."

In any channel, the survey found, it takes an average of 2.2 negative experiences for Americans to stop purchasing from a retail brand. Millennials in particular are easily influenced by negative experiences, with 78% of men and 80% of women saying they would stop shopping at a retailer as a result of a negative experience in any channel. For at least 90% of respondents, factors contributing to positive shopping experiences include inventory availability, speed of delivery and pickup and interaction with sales staff. Seventy-nine percent said that interaction with knowledgeable, friendly staff while shopping, picking up an online order or even returning an item are somewhat likely to make them purchase an additional item.

Meanwhile, 66% of respondents reported that they would order online and ship to their homes or offices, and 25% said they would order online and pick up at the store.

 

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