CVS’ Merlo: Health reform to benefit business in 2014
WOONSOCKET, R.I. — CVS Caremark, which posted solid third-quarter results across its enterprise, is well-positioned to benefit from the rapidly changing healthcare environment. That was a key message that CVS Caremark president and CEO Larry Merlo had for analysts Tuesday morning during the company’s third-quarter conference call.
“The healthcare environment is changing rapidly, and there are certainly a number of moving parts from the Patient Protection and Affordable Care Act to the private exchanges. Collectively, we expect changes within this environment to be a net positive for our business in 2014,” Merlo told analysts.
To drive growth and take advantage of the evolving landscape, the pharmacy retailer will participate in coverage expansion in the public exchanges, and also will participate in the private exchange market for both active employees and retirees.
He noted that, as the No. 1 PBM player in the managed Medicaid space, the company also is well-positioned to gain share through Medicaid expansion.
What will this mean for PBM margins? Merlo acknowledged that while it does expect to see some churn in PBM lives and perhaps some margin compression, it expects this to be mitigated by such cost-management tools as narrow networks, its Maintenance Choice offering, etc. The bottom line: The company does not expect a material impact on PBM margins in the “foreseeable future.”
“In addition to tighter pharmacy management tools, we also expect share gains from both market expansion and market churn as an additional lever to help offset PBM margin compression,” Merlo added.
Another boon for CVS Caremark is that its opportunities as it relates to healthcare reform extend beyond just its PBM business.
“Leveraging our retail footprint, we can support health plan marketing initiatives ranging from limited pilot marketing programs to full-scale educational programs. In fact, over the next six months we expect health plans to host more than 6,000 marketing events in more than 1,000 of our stores across 20 states.”
Strong results drive revised 2013 guidance
For the quarter ended Sept. 30, net revenues rose 5.8% to $32 billion compared with the year-ago period.
Net income totaled $1.25 billion, or $1.02 per share, compared with $1 billion, or 79 cents per share, in the year-ago period. Excluding a gain from a legal settlement, adjusted earnings per share rose 23.9% to $1.05.
Revenues in its pharmacy services segment rose 7.8% to $19.5 billion in the quarter. The 2014 selling season proved “strong” for its PBM business as it has completed 75% of renewals to date and has a 96% retention rate, Merlo told analysts. Net new business totaled about $1.8 billion.
Within specialty pharmacy, revenues rose about 22% year over year. Driving the growth: drug price inflation, utilization, new product launches and new PBM clients.
It is interesting to note that, to further differentiate its offerings, the company is leveraging its brick-and-mortar stores to pilot a specialty pharmacy delivery offering.
“What we’ve been able to do is take all of our specialty capabilities and connect to our retail stores. So, now members that want to get access to specialty medications can go in any one of our 7,400 stores as we roll this program out next year,” Jon Roberts, EVP and president of CVS Caremark Pharmacy Services, told analysts during the call. “We will leverage all of the back-end clinical capabilities, the billing capabilities, the fulfillment capabilities and then we will be able to deliver that prescription either to the member’s home — like what happens today with specialty pharmacy — or deliver it to their local CVS/pharmacy. Similar to Maintenance Choice, half of the people want to pick up their specialty prescription in their CVS local store and the other half want it mailed to their home.”
Meanwhile, the retail business posted a revenue increase of 5% to $16.3 billion. Same-store sales rose 3.6%. Pharmacy same-store sales increased 5.7%, while front-end same-store sales slipped 1% due to softer foot traffic. The company noted that, despite slower foot traffic, both front-store basket size and front-store margin improved “modestly” during the quarter.
Given the company’s strong operating results to date and its outlook for the remainder of the year, the company has raised and narrowed its earnings guidance for 2013. It now expects adjusted earnings per share to be between $3.94 and $3.97 in 2013. This compares with its prior guidance of $3.90 to $3.96 per share.
“We are pleased with our strong third-quarter results and optimistic about the outlook for this year and next. We see the evolving healthcare environment as an opportunity for growth, and we believe we are very well-positioned to gain market share across the enterprise,” Merlo said.
Twice bitten: Two negative experiences in any channel will make shoppers dump a retailer, survey finds
CHELMSFORD, Mass. — Negative experiences in one shopping channel can influence consumers’ perceptions of other channels too, according to a new survey.
The survey, "Holiday 2013: Top Trends to Watch," commissioned by Kronos and conducted online by Harris Interactive, found that 68% of Americans report that a negative experience in one channel can influence how they perceive physical stores, online, mobile, phone centers and catalogs. The survey was conducted from Sept. 26-30 among 2,003 adults.
"The margin of error when it comes to customer satisfaction and brand loyalty is continually shrinking, and the new survey puts some hard numbers around this disposition in retail," Kronos director of retail and hospitality practice Liz Moughan said. "The combination of the government shutdown, a millennial population to appease and the need to get a handle on omnichannel could make this holiday season a difficult one for many retailers. Fortunately, many have embraced the power of omnichannel and are well-positioned to capture the wallets of consumers not just during the holiday season, but keep shoppers loyal to their brand into the future."
In any channel, the survey found, it takes an average of 2.2 negative experiences for Americans to stop purchasing from a retail brand. Millennials in particular are easily influenced by negative experiences, with 78% of men and 80% of women saying they would stop shopping at a retailer as a result of a negative experience in any channel. For at least 90% of respondents, factors contributing to positive shopping experiences include inventory availability, speed of delivery and pickup and interaction with sales staff. Seventy-nine percent said that interaction with knowledgeable, friendly staff while shopping, picking up an online order or even returning an item are somewhat likely to make them purchase an additional item.
Meanwhile, 66% of respondents reported that they would order online and ship to their homes or offices, and 25% said they would order online and pick up at the store.
Todd Vasos named Dollar General COO; former Duane Reade exec joins Dollar General executive team
GOODLETTSVILLE, Tenn. — Dollar General on Monday announced a number of senior management changes. Todd Vasos has been named COO with responsibility for store operations, merchandising and supply chain. And David D’Arezzo has joined the company as EVP and chief merchandising officer.
"The alignment of our organization across store operations, merchandising and supply chain with the promotion of Todd to COO and the addition of David will create an even stronger management team and position us well for future growth," stated Rick Dreiling, Dollar General chairman and CEO. "Dollar General has strong management depth across the organization, which clearly understands our industry, our operations and our people. Now is the perfect time to strengthen that expertise with the addition of David to the team. Having personally experienced the impact he made at Duane Reade, I believe his vision, ability to drive results and deep experience across several industries will provide a unique perspective to Dollar General."
Vasos was most recently EVP and chief merchandising officer. Since joining the dollar store operator in December 2008, Vasos has implemented numerous merchandising initiatives key to Dollar General’s growth, the company stated. He served previously as EVP and COO at Longs Drugs, the California-based pharmacy chain acquired by CVS in 2008. Prior to that, he served as SVP and chief merchandising officer at Longs. He also held leadership positions at Eckerd Drug and Phar-Mor Food and Drug. Vasos earned a bachelor’s degree in marketing from Western Carolina University.
D’Arezzo brings more than 30 years of retail and consumer product company experience across merchandising and operations. Most recently, D’Arezzo served as EVP and COO of Grocers Supply and previously served as SVP and chief merchandising officer for Duane Reade. D’Arezzo earned a bachelor’s degree in business administration from the University of San Francisco and a master of business administration from the Wharton School at the University of Pennsylvania.