Dive Brief:
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An uptick in generic pharmacy sales and a decline in store traffic muted CVS Health’s second quarter 2016 sales, the drugstore retailer announced Tuesday morning. Sales grew 2.1% in Q2, missing analyst expectations for a 2.5% rise and trailing well behind the 4.2% increase that CVS posted in the first quarter of this year. Non-pharmacy same-store sales fell 2.5% in Q2, the company added.
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CVS reported Q2 profit of $924 million, or 86 cents per share, down from $1.27 billion/$1.12 a share in the year-ago quarter. Excluding intangible asset amortization, among other items, per-share profit rose to $1.32 from $1.22. Second quarter revenue rose 18% to $43.73 billion; analysts had expected $1.30 in adjusted earnings per share and $44.28 billion in revenue, according to Thomson Reuters.
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CVS also muted its guidance, saying it now expects per-share earnings of $5.81 to $5.89 per share, down from its earlier guidance of $5.73 to $5.88 per share and average analyst estimates of $5.82.
Dive Insight:
CVS appears to be slipping, despite efforts to sharpen its healthcare focus—for example, eschewing tobacco sales and boosting clinic-based medical services—and its beauty offerings. But while beauty sales are a drugstore retail mainstay, mall-based retailers like Sephora and Ulta, which offer many of the same lower-priced brands as many drugstore retailers, have taken market share.
CVS must also contend with the proposed merger between Walgreens Boots Alliance and Rite Aid. The deal, which is still pending approval from antitrust regulators, would create the country’s largest drugstore retailer.
CVS President and CEO Larry Merlo accentuated the positive in a statement Tuesday. “I'm very pleased with our solid second quarter results across the enterprise,” Merlo said. “Operating profit in the Retail/LTC Segment was in line with expectations while operating profit in the Pharmacy Services Segment exceeded expectations. At the same time, we have generated substantial free cash flow year-to-date and continued to return significant value to our shareholders through dividends and share repurchases."
