CVS 2007 Annual Report Download - page 13

9 I 2007 Annual Report
“ We’ve done so much more than just combine
two very successful businesses. We’ve literally
created a rst-of-its-kind company — one with
the ability to grow faster than either of its
components would have on its own.”
Generic versions of bioengineered
drugs represent another opportunity.
Currently, the United States has no
procedure for approving generic
versions of bioengineered drugs
when they come off patent. However,
we expect to see Congress enact
legislation at some point in the
future to create a biogeneric approval
process at the U.S. Food and Drug
Administration. We will be well
positioned if or when this occurs.
We continue to open new stores and
make the most of recent acquisitions.
Despite the past year’s merger
activity, we continued to execute
our organic growth strategy at
retail. CVS/pharmacy square footage
grew by 3 percent, in line with our
annual target. Of the 275 stores we
opened, 139 were new locations and
136 were relocations. Factoring in
closings, we enjoyed net unit growth
of 95 stores. We continued to expand
in our newer, high-growth areas such
as Los Angeles, San Diego, Phoenix,
Las Vegas, and Minneapolis.
The former Eckerd® locations that
we acquired in 2004 still enjoyed
same store sales growth that out-
paced our overall numbers. These
stores are benefiting from their
locations in high-growth markets –
mainly Florida and Texas – and
they continue to gain share from
competitors as well.
We’re also very pleased with
the performance of the stand-
alone Sav-on® and Osco® stores
we purchased from Albertsons.
This acquisition strengthened
our presence in the Midwest and
provided us with an immediate
leadership position in Southern
California, the country’s second-
largest drugstore market. In fact,
our Southern California CVS/
pharmacy stores now lead the
entire chain in sales. These new
CVS/pharmacy stores are benefit-
ing from an improved merchandise
assortment and category focus.
The introduction of the ExtraCare
card is encouraging customer
loyalty and helping drive an
increase in sales and margins.
In the front of the store, we’re
seeing sales growth across our core
categories, especially in beauty,
personal care, general merchandise,
and digital photo. CVS store brands
and proprietary brands have been
important drivers of gross margins.
As solid as our front-end business
is, it’s worth noting that it accounts
for 30 percent of our retail sales
compared with 70 percent for the
pharmacy. The front-end percent-
age becomes even smaller in the
context of CVS Caremark’s overall
revenues. That’s why we expect
any impact on CVS/pharmacy from
a softer economy to be limited and
manageable. After all, our average
front-end purchase is a little under
$12, and we don’t anticipate that
consumers will buy less cough
medicine, analgesics, or any of
the other non-discretionary