CVS tops 2Q forecasts, but established store sales slip
CVS Health beat second-quarter expectations and narrowed its 2017 forecast despite a continued sales slump from established drugstores that it is working to fix.
The nation’s second-largest drugstore chain said Tuesday that sales from stores open at least a year slid nearly 3 percent, a rise in generic drug prescriptions hurt the top line of its pharmacies and it had fewer customer visits.
Revenue from stores open at least a year is considered a key indicator of a drugstore chain’s financial health because it eliminates the impact of stores that have recently opened or closed. CVS Health and its competitors have been struggling to draw customers into their stores for a few quarters now, as they compete for attention with many other retail options, including a burgeoning online market.
The company has started expanding healthy food options and beauty products in its stores and cutting back on promotions that bring in business but can hurt profitability.
GlobalData Retail analyst Hakon Helgesen called the store makeovers “long overdue” and said the push has to be expansive to improve the company’s retail performance.
“The blunt truth is that, outside of health care needs, many consumers see CVS as a place to buy essentials when nowhere else is convenient,” Helgesen said in a note reviewing the second quarter.
Company leaders are calling 2017 a rebuilding year.
“While we’re pleased to report results within our expectations, we won’t be satisfied until the total enterprise returns to healthy levels of earnings growth,” CEO Larry Merlo said during a conference call with analysts to discuss results.
CVS Health runs 9,700 retail locations, counting the pharmacy and clinic businesses of retail giant Target Corp. That total is second only to Walgreens. CVS Health also processes more than a billion prescriptions annually as a pharmacy benefits manager, or PBM.
PBMs run prescription drug plans for employers, insurers and other customers. They process mail-order prescriptions and handle bills for prescriptions filled at retail pharmacies.
Revenue from the company’s PBM side jumped nearly 10 percent to $32.3 billion in the quarter that ended June 30, helped by new business.
Overall, CVS Health’s second-quarter earnings of $1.1 billion rose 19 percent compared to last year’s quarter, when the company booked a $542 million loss on the early retirement of some debt.
Adjusted results came in at $1.33 per share, with revenue climbing 4 percent to $45.68 billion.
Analysts forecast earnings of $1.31 per share on $45.35 billion in revenue, according to FactSet.
The company also said Tuesday it now expects adjusted earnings of $5.83 to $5.93 per share in 2017, as it raised the lower end of its previous forecast from $5.77 per share.
Analysts expect, on average, earnings of $5.87 per share in 2017.
Shares of Woonsocket, Rhode Island-based CVS Health Corp. fell more than 2 percent, or $1.88, to $77.24 Tuesday morning, while broader trading indexes rose slightly. The stock had inched up less than 1 percent so far this year, while the Standard & Poor’s 500 index has climbed 11 percent.