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CVS Caremark profits driven by pharmacy benefit management performance

WOONSOCKET, R.I. — CVS Caremark on Thursday reported solid third-quarter results — 2 cents above the high end of its guidance range — driven in large part by been tter-than-expected performance in its pharmacy benefit management, which is in the midst of a profit-improvement plan.

“Back in March, upon assuming CEO responsibilities, I told you we were very focused on turning around the growth trajectory of our PBM in order to unlock the full value of our integrated enterprise, and I am very pleased to report that we are delivering on our promises and we remain confident that the PBM will return to healthy operating profit growth next year,” Larry Merlo, president and CEO of CVS Caremark, told analysts during the quarterly conference call.

For the quarter ended Sept. 30, revenues in the pharmacy services segment rose 25.8% to $14.8 billion.

The retail business saw an increase of 3.8% in revenues to $14.7 billion in the quarter. Same-store sales rose 2.3%, as front-end same-store sales rose 2%. Pharmacy same-store sales increased 2.4%.

At the front of the store, traffic during the quarter was flat, but the average transaction size grew compared with last year, Merlo said. He also noted that the company is seeing success with its new proprietary beauty brand, Nuance Salma Hayek, with results year to date “exceeding plan.” Nuance Salma Hayek was developed in partnership with actress Salma Hayek.

The retailer continues to see “strong results” from its Clustering initiative. Now in the second year of its rollout, the Urban Cluster store concept currently encompasses 325 stores, with plans to encompass 420 stores by the end of the year.

A key element of the Urban Cluster concept is a significant focus on consumables. The Urban Cluster store concept can include slight variations to appeal to the local area. For instance, at the CVS Urban Cluster store in New York’s Union Square area, a more extensive wine selection appeals to tourists and guests staying at the W Hotel a few blocks away.

The company is currently testing and developing additional Clustering concepts, and Merlo told analysts that the company expects to gain additional insights in the coming months.

Net revenues for the company rose 12.5% to a record $26.7 billion during the quarter.

Net income attributable to CVS Caremark rose to $868 million, or 65 cents per share, from $809 million, or 59 cents per share, a year earlier.

Adjusted earnings per share from continuing operations attributable to CVS Caremark rose to 70 cents from 64 cents.

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