Gross margin improvements sweeten CVS third quarter take

Drug Store News, Nov 17, 2003 by Rob Eder

CVS' ExtraCare loyalty card program continues to gain traction, Rickard noted, with more than 42 million cardholders now enrolled. The investment CVS made in retooling its ExtraBucks component to a "Earn 2 Percent Everyday" offer, not to mention the TV commercials it developed to support the program, seem to have paid off, he added. At the beginning of the year, only about half of all CVS transactions were linked to the card. By the end of the third quarter, that number head reached about 55 percent.

All in all, CVS took share from other drug store competitors in 40 of 47 front-store categories, according to ACNielsen data, driven by steady performances in its core health and beauty, private label, consumables, seasonal and general merchandise businesses, Rickard said.

New markets and Eckerd?

Also contributing mightily to CVS' performance has been the strong numbers it has put on the boards in its new market stores. "Our new stores are adding about two percentage points to our total sales growth," Richard explained.

As of the end of the third quarter, CVS had opened 160 new stores for the year--49 in the quarter--including 94 new stores. However, because of some previously unplanned ProCare store closings now scheduled for this year, CVS executives have been forced to rethink previous estimates. The plan now is for CVS to open a total of 250 new or relocated stores through the end of 2003, with net unit growth of about 90 to 100 stores, versus the 100 to 125 stores it previously projected. That will add up to total square footage growth of about 3.5 percent. Currently, CVS, with sales of $809 per square foot, leads all major national drug chains by that measure.

In the third quarter, CVS opened 24 net new stores, including 17 in its new markets: six in Texas, five in Chicago, five in Florida and one in Phoenix. Of course, CVS' store count could grow further if it comes away with Eckerd's Texas and Florida stores--a scenario many deem likely. Rickard noted that for the right price, CVS would be interested in acquiring the Eckerd stores in Florida and Texas, but antitrust laws would preclude it from bidding on any of Eckerd's mid-Atlantic or Northeast stores.