CVS posts 4Q sales growth as Merlo readies for new role

WOONSOCKET, R.I. — CVS Caremark announced on Thursday an increase in fourth-quarter same-store sales and a boost in retail pharmacy revenues as pharmacy comparable-store sales benefited from the Maintenance Choice program.

"I'm pleased with our earnings this quarter, which were in line with our expectations. Our retail business continued to produce industry-leading same-store sales and achieved an all-time record operating margin," stated Larry Merlo, who currently serves as president and COO and will be taking the reins as CEO in March.

Retail pharmacy segment revenues for the three-month period ended Dec. 31, 2010, rose 3.1% to $14.9 billion, compared with the prior year's period. Same-store sales increased 1.7% as front-end same-store sales increased by 1% and pharmacy same-store sales increased 2%, reflecting a positive impact from Maintenance Choice of roughly 220 basis points on a net basis.

Net revenues for the quarter decreased 4.1% to $24.8 billion. Net income totaled $1.03 billion compared with $1.05 billion in the year-ago period.

For 2011, the company expected to generate free cash flow of $4 billion to $4.2 billion, up from $3.3 billion in free cash flow generated in 2010.

Adjusted diluted earnings per share from continuing operations are expected to be between $2.72 and $2.82 for 2011.

During a conference call to discuss CVS' results, Merlo delivered the message that with its arsenal of products and services aimed at driving adherence and reducing healthcare costs and a robust management team at the helm, CVS Caremark is well positioned for continued growth and success in the years ahead.



"We certainly have the right assets in place to continue to be a very successful company for years to come and that is a real credit to [Tom Ryan's] vision of the future of pharmacy health care. Throughout his tenure, Tom has a built a culture that is focused on innovation, customer service and flawless execution and I certainly look forward to building upon his legacy," Merlo said.

Signifying Merlo's upcoming role with the nearly $100 billion company, he largely steered the conference call, providing analysts an overview of fourth-quarter and full-year results and a glimpse of his top priorities as the new CEO.

Merlo indicated that under his watch three things will define its future success:

• Flawless execution of its strategy, which is lowering healthcare costs while improving the health of its consumers and leveraging its integrated pharmacy services model;


• Stressing more cross-functional thinking and action across the company, producing even higher levels of customer service;


• Enhancing value for all of its shareholders in ways such as improving dividend payouts and share repurchases.