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2006 Annual Report 1
Tom Ryan, Chairman, President, and CEO
More good things ACROSS THE BOARD
I’m delighted to report on another year of significant accomplish-
ments for CVS Corporation, highlighted by record revenues and
earnings, substantial free cash flow generation, and continued
organic growth. In June, we acquired 700 standalone Sav-on
and Osco drugstores from Albertson’s, Inc., providing immediate
leadership in southern California, and we have made great
progress in rapidly integrating and converting the stores to the
CVS/pharmacy® brand. We also acquired MinuteClinic®
, the
pioneer and largest provider of retail healthcare in the United
States, and have already nearly doubled the number of clinics
as we execute our aggressive rollout across the nation. At year
end, CVS operated 6,202 retail and specialty pharmacy stores,
more than any other U.S. pharmacy retailer.
Total sales for 2006 rose 18.4 percent to a record $43.8 billion.
Meanwhile, net earnings per share climbed 10.3 percent to
$1.4 billion, or $1.60 per diluted share. Same store sales
increased 8.2 percent, rising 9.1 percent in the pharmacy and
6.2 percent in the front end. Gross margins also increased,
largely due to significant generic drug introductions, increased
private label penetration in the front of the store, and the use of
our ExtraCare® loyalty program to focus promotional spending.
CVS generated approximately $570 million in free cash flow.
That has allowed us, among other things, to announce a
26 percent dividend increase for 2007. Our 176,000 CVS
colleagues across the country helped us achieve these
excellent results. I want to thank them all for their hard work
in making things “CVS easy” for our customers.
Turning to our stock’s performance, the 17.6 percent total return
on CVS shares in 2006 outpaced that of both the S&P 500 Index
and the Dow Jones Industrial Average (DJIA). Over the past three
years, our shares returned 74 percent, significantly outperforming
the 28 percent and 19 percent returns of the S&P 500 and the
DJIA, respectively.
Successfully integrating our latest acquired stores
Even with all the positive news outlined above, more good
things are on the way in 2007 and beyond. We moved swiftly to
integrate the Sav-on and Osco stores, completing the systems
conversions in September 2006. The remodeling of the stores
will be complete in March 2007. We’ve made these stores
“CVS easy” by reducing shelf heights, resetting merchandise
layouts, installing our hallmark CVS carpet, enhancing the
lighting, and improving the signage.
To Our Shareholders: