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CVS Caremark Announces Record First Quarter Results
CVS Caremark announces record first quarter revenue and earnings
for the quarter ended March 29, 2008.
Net revenues for the thirteen-week period ended March 29,
2008, increased $8.1 billion to $21.3 billion, up from $13.2
billion during the thirteen-week period ended March 31, 2007.
Same store sales (sales from stores open more than one year)
in the Company’s CVS/pharmacy division for the first
quarter rose 3.9% over the prior year period. Pharmacy same
store sales rose 3.7% and were negatively impacted by approximately
450 basis points due to recent generic introductions, while
front-end same store sales increased 4.3%. Same store sales
for the first quarter benefited from an earlier Easter (March
23rd this year versus April 8th last year), which shifted
more holiday sales into March. The Company estimates the Easter
shift had a positive impact of approximately 115 basis points
on front-end same store sales for the quarter ended March
29, 2008.
Net earnings for the first quarter ended March 29, 2008,
increased 83.1% to $748.5 million or $0.51 per diluted share
on a GAAP basis, compared with net earnings of $408.9 million
or $0.43 per diluted share in the comparable 2007 period.
Adjusted earnings per share, which excludes $0.04 in amortization
of intangible assets primarily related to acquisition activity,
for the first quarter were $0.55, compared with $0.46 per
share in the comparable 2007 period.
Tom Ryan, Chairman, President and Chief Executive Officer
of CVS Caremark, stated, “I’m very pleased with
our results for the quarter. We delivered strong revenue and
margin growth across our businesses that led to earnings at
the high end of our expectations. I’m most excited about
the substantial progress we have made on our new integrated
PBM/retail model, which is resonating strongly in the marketplace.”
For the quarter, CVS Caremark opened 41 new retail pharmacy
stores; closed 19 retail pharmacy stores, 2 mail order pharmacies
and 1 specialty mail order pharmacy. In addition, the Company
relocated 53 retail pharmacy stores and 1 specialty pharmacy
store. As of March 29, 2008 the Company operated 6,267 retail
pharmacy stores, 56 specialty pharmacy stores, 19 specialty
mail order pharmacies and 7 mail order pharmacies in 44 states
and the District of Columbia.
Honeywell to Acquire Metrologic Instruments
Honeywell announces a definitive agreement to acquire Metrologic
Instruments, Inc., a manufacturer of data capture and collection
hardware and software, for approximately $720 million. The
agreement is subject to customary closing conditions, including
regulatory review.
Based in Blackwood, New Jersey, Metrologic is a global provider
of laser and imaging bar code scanners, including high performance
linear and omnidirectional laser scanners, fixed position
and in-counter scanners, area imagers and rugged mobile computers.
Metrologic sells its products in more than 110 countries and
is majority-owned by Francisco Partners, a global private
equity firm.
Metrologic will be integrated with Honeywell Security, part
of Honeywell’s Automation and Control Solutions (ACS)
business. Metrologic’s revenue was approximately $246
million in 2007.
As a manufacturer of bar code scanners and high-speed image
processing software, Metrologic incorporates an array of laser,
holographic, vision-based, RFID and emerging technologies
to create its best-in-class products and solutions. Its imaging
and scanning solutions serve a variety of retail point-of-sale,
industrial, healthcare, inventory and distribution applications.
Approximately 65 percent of Metrologic’s business is
with customers outside North America, which will extend the
business’ global presence.
“Metrologic is very complementary to our Imaging and
Mobility business. It will strengthen and expand our presence
in key verticals, particularly retail, and provide Honeywell
with strong laser and fixed position scanning competencies,”
said Ben Cornett, President, Honeywell Security. “Through
its more than 500 issued and 350 plus pending patents, Metrologic
will allow us to extend our position in the data capture and
collection industry. We will be able to provide our customers
with even more comprehensive, robust data capture and collection
solutions to help them achieve their business goals.”
Duane Reade Experiences Q1 Sales Surge
Net retail store sales, which exclude pharmacy resale activity,
increased 3.7% to $414.9 million from $400.0 million in the
first quarter of 2007. Total net sales increased 3.1% to $427.1
million from $414.4 million in the first quarter of 2007.
Total same-store sales increased by 4.5% during the first
quarter of 2008, with a front-end same-store sales increase
of 7.0% and a pharmacy same-store sales increase of 1.5%.
During the first quarter, the Company opened one new store
and closed one store. At the end of the first quarter of 2008,
the Company operated 242 stores, compared to 245 stores at
the end of the first quarter of 2007.
Front-end sales growth was driven by continued strong performance
in the food and beverage categories, over-the-counter products,
and health and beauty care items. The front-end same-store
sales increase was favorably impacted by approximately 0.5%
due to the earlier timing of the Easter holiday this year.
The pharmacy sales growth was partially attributable to increased
Medicare Part D sales. Generic drugs, which typically sell
at lower prices but yield higher margins and profitability
than brand-named drugs, represented approximately 59.1% of
pharmacy prescriptions for the first quarter, compared to
54.3% of pharmacy prescriptions in the first quarter of 2007.
The higher proportion of generics adversely impacted pharmacy
same-store sales growth by 4.2%.
Gross margin for the first quarter was 31.1%, compared to
29.4% during the first quarter of 2007. Gross margin on retail
sales, which excludes pharmacy resale activity, increased
to 32.0% from 30.5% in the prior year, reflecting the higher
selling margins resulting from improvements in front-end margins
and increased pharmacy margins due to higher rates of generic
utilization. Selling, general and administrative expenses
as a percentage of net sales increased to 27.6% from 27.4%
in the previous year, primarily due to increased advertising
costs and recruitment fees paid in connection with the hiring
of the Company's new CEO.
In the fourth quarter of 2007, the Company reclassified its
store occupancy costs from cost of sales to selling, general
and administrative expenses in accordance with current industry
practice. For the 13 weeks ended March 29, 2008 and March
31, 2007, the reclassification resulted in decreases of $41.4
million and $40.8 million in cost of sales, respectively,
and corresponding increases in gross profit and selling, general
and administrative expenses. This accounting change did not
impact the operating loss for either of the periods presented.
The above factors resulted in a 43.2% increase in Adjusted
FIFO EBITDA, as defined on the attached schedule of preliminary
operating data, to $18.2 million for the first quarter of
2008, compared to $12.7 million in the prior year period.
As a percentage of sales, Adjusted FIFO EBITDA increased to
4.3% from 3.1% in the first quarter of 2007.
The first quarter operating loss was $4.1 million, compared
to $14.9 million in the prior year period. The improvement
was primarily due to the factors described above and a reduction
in other expenses from $5.0 million in 2007 to $0.9 million
during the first quarter of 2008. The other expenses in the
prior year's first quarter included $2.4 million of expenses
incurred in connection with the Company's former CEO (Mr.
Cuti) and $1.7 million of closed store expenses, compared
to $0.3 million and $0.2 million, respectively, in the current
year's first quarter.
The net loss for the quarter was $21.0 million, compared
to $30.5 million in the prior year period. The improvement
in this measure is attributable to the factors discussed above
and was partially offset by $1.5 million of additional interest
expense in the first quarter of 2008, compared to the prior
year. The additional interest expense was primarily due to
the non-cash fair value adjustment for the mandatory redemption
feature in the Company's outstanding redeemable preferred
stock, which is considered a derivative financial instrument,
and was partially offset by lower floating interest rates
on the Company's variable rate borrowings as compared to the
prior year.
At quarter end, the Company's total debt, including capital
leases but excluding the liability associated with the issuance
of the redeemable preferred stock, was $564.2 million, reflecting
an increase of $8.4 million from the balance at the end of
fiscal 2007. Availability under the Company's revolving credit
facility at quarter end was approximately $63.0 million. The
availability at quarter end reflects the benefit of unspent
proceeds from the sale of redeemable preferred stock and common
stock warrants to Oak Hill Capital Partners L.P. and their
affiliates. These proceeds were received in the first half
of 2007 and are being used to fund the acquisition of up to
eight store leases from the Gristedes supermarket chain as
well as certain growth-related capital expenditures. At March
29, 2008, the Company had completed the acquisition and opening
of five of the former Gristedes stores.
Cabela’s Expands Analytical Capabilities
Cabela’s expands its Teradata system to enable more
extensive analysis of data pertaining to customer behavior.
This will support Cabela’s initiatives to provide more
precise and personal service to its millions of customers.
The Teradata system integrates data from Cabela stores, catalog
and online operations to address critical needs and provide
strategic and tactical business insight. The retailer uses
a variety of software tools running on Teradata to continuously
improve merchandising and marketing analysis across its large
customer base.
“Cabela’s is focused on developing the tools and
analytical capabilities necessary to take the vast amount
of multi-channel data available and turn it into actionable
insights,” said Corey Bergstrom, director of analytics
at Cabela’s. “The current partnership with Teradata
has positioned Cabela’s to provide more dynamic information
to more areas of the company – and we feel this expanded
partnership will provide even more flexibility in terms of
data availability and ultimately, insights that can be leveraged
to better take care of our customers.”
The recent Teradata system expansion at Cabela’s also
includes the addition of a Teradata financial services data
model for improved visibility into financial performance drivers
and management. The data model establishes relevant connections
pertaining to individual customers, spending details, economic
data, region, store locations, promotional events and types
of business impact. This helps accelerate insight for analytical
questions such as the impact of certain promotional events
on customer spending, correlations to payment details, customer
profitability and detailed analysis of sales to merchandise,
assortment and selling channel.
Walgreens Expands Use of Mobile Fulfillment Solution for
Store Restocking
Walgreens expands its Kiva Mobile Fulfillment System in its
Mt. Vernon, Illinois facility. The expansion enables Walgreens
to move additional inventory items and volume into its Kiva
system, filling the remaining space in this Illinois facility.
Walgreens initially chose the Kiva Mobile Fulfillment System
for its speed, accuracy and flexibility, all of which are
critical to the company’s expansion. Walgreens operates
more than 6,200 stores, and plans to open 550 new stores during
its 2008 fiscal year.
Kiva utilizes a fleet of mobile robotic drive units that
bring inventory directly to workers, allowing easy and efficient
access to all inventory items at all times. For retail replenishment,
which demands high picking speed, Kiva helps boost productivity,
while maintaining picking standards. Elimination of operator
walking and waiting time enables worker productivity that
is two to three times higher than with other automated systems.
The Kiva OrderFetch shipping sorter also routes the totes
to and from the pickers, ensuring that the right order is
delivered to the right dock door at the right time.
Burlington Coat Factory Implements Merchandising Reporting
and Analytics
Burlington Coat Factory Warehouse Corporation has selected
MicroStrategy for merchandising reporting and analytics. Burlington
Coat Factory plans to use MicroStrategy for reporting and
analysis on key merchandising metrics. MicroStrategy will
convert the detailed transactional data into personalized
reports through dashboards and exception reporting for Burlington
Coat Factory executives and merchants. MicroStrategy teamed
with QuantiSense to provide Burlington Coat Factory with an
end-to-end solution for their retail business intelligence
requirements.
“Following a highly competitive evaluation of merchandising-related
BI products, we felt that MicroStrategy and QuantiSense provided
the solution that best fit our growing BI requirements,”
said Brad Friedman, Senior Vice President of Information Services,
Burlington Coat Factory. “MicroStrategy is a robust BI
product with proven retail experience. We were impressed with
MicroStrategy’s analytical toolset, which we expect to
empower our users to create their own reports and dashboards
and remove IT from the report request process.”
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