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Wall Street analysts recant prediction of CVS Caremark split

BY Antoinette Alexander

NEW YORK — Wall Street calls for the breakup of CVS Caremark? Nope, not so fast.

About a year after analysts called for the split of CVS Caremark’s PBM business, they now are changing their tune on the heels of the company’s 2011 Analyst Day presentation on Dec. 20.

In fact, shares of CVS Caremark ended 2011 up 17% and, as Dow Jones Newswires reported, is trading at a roughly 3-and-a-half-year high.

During the company’s recent Analyst Day presentation, executives outlined a strong growth outlook for 2012 and also announced the approval of an increase in quarterly dividend of roughly 30%. For the pharmacy services segment, operating profit is expected to increase by 11% to 15%.

Last year, president and CEO Larry Merlo defied calls for a CVS Caremark breakup amid the PBM’s less-than-favorable performance. But, as the retailer has demonstrated, a lot can change in a year.

In a recent interview with Dow Jones, EVP and CFO Dave Denton was quoted as saying that CVS turned the PBM business from a decline in operating profit in the first half of 2011 to growth in the back half, with further gains expected this year.

Following the Analyst Day presentation, several analysts expressed their optimism and faith in the integrated model.

"The 2013 selling season is the most promising one since CVS acquired Caremark. This reflects the powerful combination of a business model that has come into its own — with 110 million retail interventions lowering costs for payers — just as its largest competitors have meaningful uncertainties in their business," stated Guggenheim analyst John Heinbockel in a research note. "Not only should CVS be able to retain the vast majority of its $16 billion book up for renewal in 2012 at fairly attractive margins but it could well steal billions of dollars in business from its competitors, including Medco and Express Scripts."

Morgan Stanley analyst Mark Wiltamuth stated in a research note, "Five years after its merger with Caremark, CVS is hitting its stride. [The] PBM segment is poised for double-digit operating growth in 2012 and for margin expansion in 2013. [Its] pharmacy strategy is supported by [the] PBM reach providing CVS with a competitive advantage, compared with its retail peers."

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Thinkway Toys to create ‘Despicable Me 2’ toys

BY Allison Cerra

UNIVERSAL CITY, Calif. — Thinkway Toys will launch a new line of toys based on the follow-up animated film to "Despicable Me," Universal Partnerships and Licensing and Illumination Entertainment announced.

Thinkway Toys was granted a master global toy license for the release of animated film, "Despicable Me 2," and will develop a wide variety of toys featuring the minions and other key characters, including interactive toys, figures, plush, dolls, playsets, vehicles, role play and novelty items, UP&L and Illumination Entertainment said.

"Our team is ecstatic to create an all new line of toys for ‘Despicable Me 2.’   The characters are endearing, filled with humor and adventure and we can’t wait to include these elements into the toy line," Thinkway Toys CEO Albert Chan said.

"Despicable Me 2" is slated for release on July 3, 2013.

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Is a turnaround at Sears Holdings on the way?

BY Alaric DeArment

WHAT IT MEANS AND WHY IT’S IMPORTANT — One of the most enduring rules of business is that when customers stop coming through the door, then the time has come for a reinvention.

Recent decisions by Sears Holdings indicate that despite its financial problems, it’s not too late for a comeback. The hiring of Ron Boire to head merchandising could give it new direction, while the introduction of the Fitness Flagship store-within-a-store allows Sears to capitalize on an area in which it has long specialized while taking advantage of the growing interest in health and wellness.

(THE NEWS: Kmart parent brings in new merchandising leader. For the full story, click here)

In particular, hiring Boire — whom president and CEO Lou D’Ambrosio singled out as somebody known for engineering turnarounds — indicates that Sears Holdings is looking to engineer a turnaround, and given its situation, it could certainly use one.

At the end of December, the company announced it would shutter more than 100 stores, as well reduce domestic inventory by $300 million. This came in the wake of disappointing sales results that showed a 5.2% decline in comps for the eight-week period ending Dec. 25. The company posted similarly disappointing results in third quarter 2011, including a $421 million net loss and a 0.9% decline in comps at Kmart, a 0.7% decline at U.S. Sears stores and a 7.8% decline in the company’s Canadian stores.

Sears is one of the oldest major retailers in the country and an American cultural icon, but it’s also old-fashioned compared with competitors like Target and Walmart. There’s nothing wrong with the products it sells today in and of themselves, but today’s consumers are more likely to go to specialty retailers like Home Depot, Best Buy and Macy’s to buy the tools, appliances and clothing that past consumers would have purchased at Sears.

If Sears Holdings wants to make a comeback, it’s going to have to show consumers and investors why it’s special and what it can do that other retailers can’t.

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