By Paul Ziobro and Ben Fox Rubin
CVS Caremark Corp. paid a price for not joining in the
discounting frenzy favored by some rivals, reporting lower sales of
generic drugs, personal-care items and grocery products at the
front area of its stores.
CVS has deliberately avoided the aggressive discounting some
retailers are using to boost revenue. "Quite frankly, we think
there are elements of the current promotional marketplace that are
not sustainable," CVS Chief Executive Larry Merlo said.
Retailers of all stripes have been relying on discounts to lure
bargain-conscious shoppers into stores amid lackluster overall
sales. Over a third of packaged food and household products are now
sold with discounts, as retailers and manufacturers struggle to get
people to open their wallets.
Instead, CVS said it is offering more personalized deals to
customers using data mined from its loyalty program. Such offers,
Mr. Merlo said, leave a softer blow to CVS's bottom line.
Overall, though, the company reported rising revenue and
earnings, boosted by gains in its specialty pharmacy business, drug
cost inflation, and new clients and products. In addition, CVS in
January completed its purchase of Coram, a provider of infusion
therapies, for $2.1 billion, which helped sales.
Profit rose 19% to $1.13 billion for the quarter.
Revenue grew 6.3% to $32.69 billion. Revenue increased in both
its pharmacy services business, up 10% to $20.2 billion, and its
retail pharmacy business, 2.7% higher to $16.5 billion. Certain
transactions are counted in the revenue of both segments, which is
why their sum appears higher than the total revenue.
On its retail side, sales in front of the pharmacy counter were
down 2.4% for the quarter, while sales rose 5.1% in the
pharmacy.
The results come as CVS remains the lone major pharmacy chain to
swear off cigarettes and tobacco products, saying they have no
place in a drugstore company that is trying to become more of a
health-care provider. The step reflects a big push by retail
pharmacies away from simply dispensing drugs toward a broader role
of providing basic health services to Americans, including millions
of newly insured, amid an expected shortage of primary care
doctors.
CVS, whose stores will be tobacco-free in October, is counting
on the move to help its image as a provider of basic health
services, especially as millions of Americans sign up for health
insurance programs.
Company executives on Friday described the decision as being a
draw for some customers and business it is going after. "It's just
another intangible that as they're making decisions around which
provider they want to go with, they feel really good about a
company that's made a move like that," said Jon Roberts, president
of CVS's pharmacy benefits management business.
The drugstore-operator and pharmacy-benefits manager in December
said it was forming a joint venture with Cardinal Health Inc. to
source generic drugs, a key issue for the industry as consumers
increasingly are using the less-expensive medicines.
Write to Paul Ziobro at Paul.Ziobro@wsj.com and Ben Fox Rubin at
ben.rubin@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires