This summary is based on the third quarter fiscal 2007 earnings call conducted by CVS Caremark Corporation (CVS) on November 1, 2007.
Management:
Chief Executive Officer, President, Director: Thomas M. Ryan
President, Caremark: Howard A. McLure
Senior Vice President, Investor Relations: Nancy Christal
Chief Financial Officer, Executive Vice President, Chief Administrative Officer: David B. Rickard
Key Investors Issues
- EPS were 45 cents a share compared to 33 cents a share last year.
- Profit rose to $689.5 million from $284.2 million a year earlier.
- Revenue was $20.5 billion from $11.2 billion a year ago.
Second Quarter Highlights
Total same-store sales were up 4.6%, with pharmacy comparable store sales up 4.5% despite being negatively impacted by approximately 420 basis points due to recent generic introductions.
- Front-store comparable store sales were up 4.8%.
- On a two-year stack basis, total same-store sales were 13.9%, with pharmacy comparable store sales 15.2% and front-store comparable store sales 10.6%.
- The company experienced solid growth across core front-store categories in October, especially beauty, personal care, general merchandise, and digital photo. This was the fourth month that the Save-On and Osco stores acquired from Albertson’s last year are included in comparable store sales.
- The company estimates the inclusion of the 2006 acquired stores had a 95 basis point positive impact on overall front-store comparable store sales in October and an 8 basis point positive impact on overall pharmacy comparable store sales in October, and a 35 basis point positive impact on overall comparable store sales.
Operating margins expanded by 140 basis points.
- Free cash flow was positive and improved from last year’s third quarter.
- The company is growing minute clinic as fast as it can.
- The company started the year with just over 140 clinics in about 18 states, and clinic count now stands at 350 clinics in 24 states. All but 23 clinics are located in CVS stores.
Pharmacy comparable store sales were up 4.3%, even though it was cycling against 10.2, which were achieved in last year’s quarter because of the benefit of Med D.
- In addition, while pharmacy revenue growth rate is increasingly restrained by the increase of new generic products, profitability per script is higher than ever before.
- Since the rollout of Med D last year, the company continues to gain share in the 65-plus population.
- Script growth for people 65 and older continues to outpace all others. September year-to-date scripts 65 and older increased 8.1%, while scripts for people under 65 grew 4.6%.
Front comparable store sales increased 6.5, against 6.4 last year.
- The company continues to grow share in categories of OTC, health, beauty, private label, and digital photo.
- Customer traffic on a comparable store sales basis continues to run up in the 2 to 4 range, while average ticket continues to increase.
- Private label business remains a strong area of focus. It represents about 14% of core business, which now includes the Eckerd stores, and the company has increased the penetration of Save-On Osco stores to about 13%.
- The company remains comfortable with the goal of 18% to 20% of front-store sales coming from private label and proprietary brands in the next three to five years.
The company opened up 78 stores, 37 new, 40 relos and closed seven others, so it has 29 net new.
Plan is to open up approximately 275 stores, 140 of which will be new, 135 relos, and the company expects net growth of about 100 stores, which is about 3%.
On a consolidated basis, revenues increased 83% over the prior year to $20.5 billion.
This includes $1.1 billion of inter-segment eliminations produced as a result of Caremark clients filling their prescriptions on CVS pharmacy stores.
In PBM segment, progress is best measured assuming Caremark and PharmaCare were combined in both years.
