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CVS Health Q2 sees slight decline in retail sales, exceeds CVS Caremark expectations

BY David Salazar
WOONSOCKET, R.I. — CVS Health has reported its second quarter results, reporting $45.7 billion in net revenues — a 4.5% for the quarter ended June 30, driven largely by strong business in it pharmacy services segment, which includes its mail-order and specialty pharmacy services under its CVS Caremark pharmacy benefits manager. The company’s retail/long-term care segment performed in-line with its expectations. 
 
“The second quarter results we posted today keep us nicely on pace to achieve our full-year targets. Operating profit in the retail/LTC segment was in line with expectations while operating profit in the pharmacy services segment exceeded expectations,” CVS Health president and CEO Larry Merlo said. “At the same time, we have generated substantial free cash flow year-to-date and continued to return significant value to our shareholders through dividends and share repurchases. While we are pleased to report results consistent with our expectations, we won’t be satisfied until the total enterprise returns to healthy levels of earnings growth.”
 
Net revenues in the company’s retail/LTC segment hit $19.6 billion in Q2 — a decrease of 2.2% over the same quarter last year. The company attributes the revenue decline to a 2.6% decrease in comparable-store sales, increased generic dispensing and reimbursement pressure. 
 
Pharmacy same-store sales dropped 2.8% and saw a 410 basis point impact of new generic introductions, with same-store prescription volumes remaining flat on a 30-day equivalent basis. CVS Health said that exclusion from restricted networks had an impact of 460 basis point son same-store script volumes. The pharmacy/LTC segment’s generic dispensing rate increased 130 basis points to 87.2%
 
In the front of the store, same-store sales dropped 2.1%, reflecting a positive impact of 75 basis points attributable to the Easter holiday taking place during Q2. Same-store sales also saw the impact of softer customer traffics and the company’s efforts to rationalize promotional strategies, though this was offset by an increase in basket size. 
 
CVS Health’s pharmacy services segment saw revenue increase 9.5% in Q2, bringing in $32.3 billion. The company said the rise in revenue was driven by network claim volume, brand inflation and specialty pharmacy volume, and offset slightly by increased generic dispensing and price compression. The segment’s pharmacy network claims increased 10.3% on a 30-day equivalent basis to 376 million, which the company attributed to net new business. Mail choice claims increased 5.2% on a 30-day equivalent basis, driven by the adoption of the company’s Maintenance Choice offerings and an increase in specialty pharmacy claims. 
 
CVS health also reported a 10.2% decrease in its operating profit, offset by pharmacy network claim volume growth and specialty pharmacy growth in its pharmacy services segment, as well as a $71 million decrease in acquisition-related integration costs. The company narrowed and revised its full-year GAAP diluted earnings-per-share guidance to $4.92 to $5.02, and modified its adjusted EPS guidance to $5.83 to $5.93.
 
During Q2, CVs Health opened 27 new retail locations and closed three, relocating 10 locations. During 2017, the company said it still plans to close roughly 70 retail stores. In the first half of the year, it has closed 63 stores and taken a charge of $205 million. 
 
“Given our performance in the first half and our confidence in our expectations for the back half of this year, we are narrowing and raising the midpoint of our Adjusted EPS guidance for 2017,” Merlo said. “Additionally, our differentiated value proposition continues to resonate in the marketplace. The 2018 selling season is shaping up to be another successful one for our PBM, with solid gross and net new business achieved to date.”
 

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Hush Baby, Attitude win DSN/ECRM Buyers’ Choice Awards at baby, infant EPPS

BY DSN STAFF

Hush Baby won the ECRM/Drug Store News Buyers Choice Award for its sound-absorbing Hush Hat during ECRM’s Baby and Infant EPPS, held recently in Orlando. Attitude was a finalist for its biodegradable baby wipes.

The two companies were selected from dozens of entries in the award program, samples of which were displayed in the ECRM hospitality area during the EPPS meetings. Buyers cast their votes based on product innovation and packaging.

Hush Baby, South Ogden, Utah, was founded by a single mom, Jaycee Bybee, who developed the Hush Hat after her second child was born very sensitive to sound and would easily wake up from the slightest noise. The Hush Hat is a sound absorbing hat for babies, tested by Owens Corning Lab and developed to soften sounds that wake sleeping babies, as well as protect their hearing. According to the company, the Hush Hat helps babies nap longer at home by absorbing the startle sounds like ringing door bells, barking dog and noisy siblings. It is also suited for use outside of the home, such as in restaurants, little league games, and during travel.

Attitude is a Montreal-based company that develops all-natural sun, baby, and personal care products that are hypoallergenic and made from plant- and mineral-based ingredients. The Attitude Baby Wipes are made from plant-based materials and are biodegradable and compostable, making them as gentle on the planet as they are on a baby’s skin. They are part of Attitude’s Sensitive Skin Solution line, which offers a full range of products for babies that are certified by the National Eczema Association, enriched with colloidal oatmeal, fragrance-free, hypoallergenic and clinically tested by dermatologists.

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The Takeaway: McKesson’s Chris Dimos, black belt in life

BY DSN STAFF

Humble roots in the family business fed a calling to ‘create moments that matter.’ A lifetime of martial arts training gave him the confidence and discipline to make it happen. Drug Store News Mckesson SVP marketing, strategy and business development Chris Dimos about his mentors, his background in his family’s business and how his passions have shaped his approach to doing business. 

DSN: Who were your most important mentors — either growing up or in business — and what was the most important thing you learned from them?
Chris Dimos: I think I’ve had a great business mentor in Kevin Tripp. Kevin’s philosophy was to develop the person, not the position. What I mean is he would put me into all these different situations. It wasn’t just like ‘Chris is good — let’s just keep giving him more.’ It was more like, ‘I want you to do this role, and now I want to pick you up and put you in a totally different role that perhaps made you a little uneasy or uncomfortable, but let’s see how you grow and what you learn from of it.’

Growing up, it was my dad. I grew up around family-owned businesses. I worked next to my dad from [the time I was] eight years old … in the family-owned restaurant. My dad imparted an awful lot about who you are, character, integrity. … I learned early that you live your life, but you also lived your business life. I think one of the most important things [he taught me] was not to let what you do define who you are.
It’s not so much how you lead, … it’s more about who are you. When you introduce yourself to somebody it’s not, ‘Hi, I’m the senior vice president of [X],’ it’s really about how you interact with people on a broad basis. That lesson is something that just has been ingrained in me [from a young age].

DSN: So, growing up in the family business, what made you want to get into the pharmacy business?
Dimos: My dad was a serial entrepreneur and had several different businesses. But the restaurant was … near two independent pharmacies, and those pharmacists came in every morning for breakfast and most evenings for dinner. I got to know [them] and understand what it was they did. And some of the best advice I ever got was from my grandfather; he told me, ‘People will either be hungry or sick, so choose one of those two. We chose the restaurant business, you can either choose that or the medical field.’

So when I [got to know the pharmacists], I became kind of intrigued with this idea of making people healthier or feel better, and it really was more of a personal ethos for me; how do we leave the earth a little better than we found it? For my family, it was about how do you impact people’s lives beyond just the meal that you serve them, and I thought that through medicine I’d be able to do that — to have a positive impact on people’s lives.

DSN: Many people may not know, but in addition to having played Division 1 college football, you’re also a highly accomplished martial artist. How do you think those experiences — the training, the discipline, the sacrifice —have helped shape your approach to life and/or business?
Dimos: I think they [feed] into each other. … My desire to start studying martial arts at a very young age was primarily driven not only for self defense, but, more importantly, it was about confidence. It was about being able to be confident in any situation and understand how to control the adrenaline, or control the rush, because you knew you had the confidence that you would be able to take care of any situation. Growing up in Gary, Ind., when I did, that was an important thing to have. That foundation [gave me] … the confidence that I would be able to do whatever I put my mind to.

I played college [football], but I wasn’t an accomplished college athlete by any stretch of the imagination. For me, the combination of being able to [focus in stressful] situations —to be cool and calm under fire — and understanding that through hard work there were benefits on the other side. And for me, it was about, ‘what role did you play?’ If you balance the individual sport of martial arts against a team sport, my approach to the team sport was that I had an individual job to do, and the best I could be at that individual role would make the team successful. It’s about focusing an awful lot on how I could be the best me. …

DSN: What’s the biggest mistake you ever made, and what did you learn from it? How should a person react to success and/or failure?
Dimos: I think you should celebrate success and learn from success, … but you also should learn from failure and not be afraid to fail. I learn about as much from success as I do from failure — one feels better, but I learn an awful lot in both situations. … The most fulfilling thing for me is to know I push as hard as I can. Sometimes that ends up in success and sometimes that ends up in failure — and both are ok.

The biggest mistake? I’ve made a lot of them. One that I’ve shared before was trying to predict how the state of California would [react] if we [exited the] worker’s comp program because of low reimbursement rates. …It was one of the biggest financial mistakes I ever made, but long term I learned from it. I learned that [failure] allows you to make a different decision very quickly. So with failure — I say this a lot — I make decisions quickly because if I’m wrong I have the opportunity to make them again. Don’t be wedded to your last bad decision.

DSN: If you could be anywhere, other than where you are right now, where would you be?
Dimos: I think the most important thing for me is family. Do you mean, if I wasn’t [doing what I do now], what would I do?

DSN: Yes.
Dimos: I think it’s funny… I might be back in the restaurant business.

DSN: What about it do you miss?
Dimos: I’m a ‘live-to-eat’ not an ‘eat-to-live’ kind of guy. … For me, meals have always been about good times, family and surrounding yourself with people who you love. It’s about how you create those moments that matter for people. I think you can do that through health care, but I also think you can do that through the restaurant business. So, I think that’s maybe where I would be. I would be back in a family restaurant trying to create [those moments] where you can get great food and great atmosphere and have a real family experience.

DSN: Where do you find inspiration in life?
Dimos: Inspiration has a lot to do with my faith. … [I want to] understand my role for my time here.

DSN: If you could have one superpower, what would it be?
Dimos: To be able to see the future. I say that, but then I worry that would screw everything up, right? If I could see the future then it wouldn’t be a surprise. I absolutely love to be surprised.

DSN: If you could go back in time and talk to 21-year-old Chris Dimos, what advice would you give yourself?
Dimos: You know I have this classic dad problem. I hold onto my kids, … [and] I’m amazed at how quick they grow up. It’s like the old Harry Chapin song, ‘The Cat’s in the Cradle.’ So, I would tell myself to spend more time in the present. It’s funny, you’re eager to drive your career, you’re trying to build who you are — your brand — and sometimes at the expense of things that are more important.

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