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Sears Holdings posts $3.1 billion loss for 2011

BY Alaric DeArment

HOFFMAN ESTATES, Ill. — "Integrated retail" was the dominant theme as executives discussed Kmart operator Sears Holdings’ plans to restore confidence in the company after a fourth quarter 2011 that even the company’s chief executive called "unacceptable" during an earnings call Thursday.

"Our fourth-quarter earnings were unacceptable," president and CEO Lou D’Ambrosio told investors and analysts. "We know that and are taking immediate actions to address it." D’Ambrosio said the actions would include cost reductions to improve financial performance, actions to improve productivity and hiring new talent to bolster the company’s merchandising and leadership teams. The cost reductions include plans, also announced Thursday, to sell 11 Sears stores to General Growth Properties for $270 million; the stores will continue operating as Sears stores into next year, with plans to announce final closing dates later this year.

The company also will separate its Sears Hometown and Outlet businesses, as well as some hardware stores, through a proposed rights offering, which it expects to raise $400 million to $500 million. Other plans include the introduction of a new casual clothing line at Kmart directed at men ages 25 years to 35 years, announced by new chief merchant and president for the Kmart and Sears formats Ron Boire. "I joined Sears because I felt the company had enormous, untapped potential," Boire said during the call.

In addition, D’Ambrosio hinted at greater use of technology in stores in order to create a more interactive customer experience as part of the company’s integrated retail plans. "We believe the retailers who best use technology to integrate the customer experience across all channels will be the ones who win," he said.

The call was a rarity for the company, which despite its iconic status in American culture, continued presence as a major retailer and ownership of several still-popular consumer product brands has experienced a steep decline as more successful competitors like Target and Walmart have expanded. "We’re prepared to take whatever steps are necessary, from cost reductions and operational improvements to active portfolio management, to deliver an acceleration of our strategic initiatives to restore our company to greatness and deliver attractive returns to our shareholders," D’Ambrosio said.

Kmart comps declined 2.7% for the quarter and 1.4% for the year, with sales of $4.84 billion for the quarter and $11.8 billion for the year, compared with $4.9 billion for fourth quarter 2010 and $11.75 billion for fiscal 2010. Sears Holdings as a whole reported sales of $12.48 billion in fourth quarter 2011 and $41.56 billion in fiscal 2011, compared with $13 billion in fourth quarter 2010 and $42.6 billion in fiscal 2010. The company recorded a net loss of $2.4 billion for the quarter and $3.1 billion for fiscal 2011, compared with a profit of $374 million for fourth quarter 2010 and $122 million for fiscal 2010. The company operated 1,305 Kmart stores, compared with 1,307 last year.

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Study: Physicians do not consistently follow ADA-recommended prescribing guidelines for newly diagnosed diabetics

BY Antoinette Alexander

WOONSOCKET, R.I. — Physicians in 35% of cases involving more than 250,000 newly diagnosed diabetes patients did not follow the American Diabetes Association/European Association for the Study of Diabetes consensus guidelines for recommended treatment, according to a new CVS Caremark study.

In addition to the quality of care implications, because those guidelines recommend use of generic medications rather than more expensive branded medications, patients, payers and the healthcare system could be paying an additional $420 million annually for the newly initiated treatment, the researchers stated.

The study was conducted by researchers from CVS Caremark, Harvard University and Brigham and Women’s Hospital, and was published this week in the American Journal of Medicine. The review looked at pharmacy claims of 254,000 patients who were newly started on a diabetes medication between Jan. 1, 2006, and Dec. 31, 2008. The research found more than one-third of initial treatment regimens for diabetes did not include the ADA’s recommended first-line drug, which is a generic.

"While 65% of the patients we studied received care consistent with the ADA consensus statements, our results highlight remaining gaps between practice recommendations and contemporary pharmacotherapy for diabetes mellitus (Type 2)," researchers wrote in the study.

"We felt it was important to look at how the guidelines were being followed to review the quality of care for patients with diabetes who were newly initiating drug therapy. However, because the guidelines recommend generics as a way to provide cost-effective quality care, the economics of this review were impossible to ignore. That makes this study the first, to our knowledge, to define the fiscal implications of therapeutic choices in a large population of patients with diabetes," stated Niteesh K. Choudhry, associate physician in the Division of Pharmacoepidemiology and Pharmacoeconomics at Brigham and Women’s Hospital, associate professor at Harvard Medical School and senior author of the study.

Choudhry added, "With approximately 2 million new cases of diabetes each year, if the medication patterns and insurance coverage for our cohort is representative of the U.S. population, an excess expenditure of $1,120 per patient per year would translate to more than $420 million in additional direct medication costs for diabetes therapy outside the established consensus guideline recommendations. Because the prevalence of diabetes is increasing quite dramatically, the potential savings from improved adherence to these recommendations could far exceed these estimates."

"We found significant variability in clinical practice for treating patients with diabetes," added Troyen A. Brenan, CVS Caremark EVP and chief medical officer, and head of the research initiative with Harvard and Brigham and Women’s. "As we look for ways to rein in the cost of health care, we need to look at how physicians apply practices such as the ADA-recommended consensus guidelines because they align clinical effectiveness with cost-effective prescribing."

Type-2 diabetes has emerged as one of the most significant health issues worldwide. In the United States, more than 20 million people have diabetes, and the number of Americans with the disease is expected to increase by 165% by 2050. In the United States, treatment of the disease is estimated to cost $200 billion annually.

The researchers reviewed how doctors are treating newly diagnosed patients through a review of CVS Caremark’s claims data to learn more about the clinical practices for those patients who are prescribed oral medications as part of their treatment. Because there is a substantial price difference between generic and branded medications, the researchers said a look at the economics of treatment was in order. The pharmacy claims they reviewed showed those being treated with generics spent an average of $116.10 over six months, compared with $677.20 for the more expensive therapies. That is a difference of $560 per patient for six months, or $1,120 per patient per year.

CVS Caremark has been working with Harvard and Brigham and Women’s to assist in the research of ways to improve pharmacy care. The collaboration, which has been in place for the past three years, has resulted in more than 20 published peer-reviewed articles about patient medication-taking behavior and issues of adherence.


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Coming out of 2011, Safeway looking toward higher comps, stronger pharmacy biz

BY Michael Johnsen

PLEASANTON, Calif. — Pharmacy and identical-store sales were identified as positives for Safeway, which discussed its fourth-quarter results with analysts on Thursday.

However, a 4.4% drop in gross profit margin, from 28.3% to 27%, drove Safeway shares down significantly this morning — as of early afternoon shares were down by almost $2 to around $21 per share, or just under a 10% decline. Early reports noted that the juxtaposition between rising fuel costs and inflationary food costs, coupled with a cost-conscious, value-driven consumer, placed Safeway’s ability to maintain profit margins between a rock and a hard place.

"When you have a 25% increase in [the cost of] fuel, and you have something close to a 5% increase in food … fuel is a touch more than 8% of a consumer’s budget and then you have food which is a little more than 13%," Safeway chairman, president and CEO Steve Burd said late Thursday morning during an analyst call. "That bucket of goods purchased goes up an average of 12.5%," he said. "Based on the market share data that we have, [this dynamic is impacting] virtually all food retailers."

So far into Safeway’s first quarter fiscal 2012, Safeway market share is on the rise despite the "same kind of softness in sales," Burd said. Part of that increase can be traced, however, to an influx of pharmacy patients out of the Walgreens/Express Scripts situation. "We didn’t see it in the first couple of weeks … but we’ve seen it ever since. It’s significant," Burd said. But Safeway also is organically growing its pharmacy business, Burd added. "It’s tough to generate positive [identical-store sales] in the script business … but we’re able to do that. Part of that benefit is the strong vaccination business we have; part of that is an increased focus on specialty. So we expect pharmacy business for us to be quite good this year."

On Thursday morning, Credit Suisse analyst Ed Kelly was still bullish on Safeway, noting that Safeway’s prevalence in the California market will be a strong positive to the grocer’s bottom line in the coming year. "West Coast supermarket sales — as reported by Nielsen — have outpaced national industry sales by 150 basis points in the last two months," Kelly wrote in a Thursday morning note. "While industry sales nationally have been weak, it appears California (35% of Safeway stores, but likely over 50% of earnings) has been better. It’s too early to call a recovery in the region, but any sustained improvement would be a large positive for the stock."

Overall sales were up 6.3% to $43.6 billion for the fiscal 2011 year ended Dec. 31. Identical-store sales were up 4.4% for the year; however, excluding fuel sales, same-store sales were up 1%. Safeway has been seeing significant gains in fuel sales in the past two years, Burd said. While volume across branded gasoline stations is down 3%, Burd said, Safeway’s fuel volume is up 15%. "That’s the second year in a row that we’ve been running volume increases to that magnitude," he said. "People have been responding to our fuel program."

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