CVS Store Closures: Why The Retailer Is Closing Locations Amid Revenue Increases

Upon the release of its third-quarter earnings report, CVS (CVS) announced that it would be closing 22 underperforming stores in the first quarter of 2020. The company closed a total of 46 stores in 2019.

While the locations of the stores that would be closing were not disclosed, CVS did report a $135 million store rationalization charge based on the 46 store closures that occurred throughout 2019. It also recorded a $96 million store rationalization charge for Q3 for the 22 store closures.

CVS, as well as other drugstores, have come under aggressive competition by online pharmacies as consumers turn towards the internet for prescriptions and drugstore products, CNBC reported. However, CVS said it does not expect “meaningful” store closures.

CVS reported a total revenue increase of 36.5% compared to Q3 2019, which it said was driven by its November 2018 acquisition of Aetna as well as price inflation of volume and brand name drugs. Operating income for the company also increased by 13.8% over the same time last year.

Total revenue for CVS’s pharmacy segment was up 6.4%, while its retail segment saw an increase in total revenue of 2.9% compared to Q3 2019. Its healthcare segment increased its total revenue by $16.5 billion in the third quarter of 2019 compared to the same time last year, which again was driven by the Aetna acquisition.

Full-year guidance for CVS included an operating income range of $11.77 to $11.95 billion, down from the $11.82 to $12.02 billion previously forecasted.

“Our third quarter results build on the positive momentum we have seen across the company since the beginning of the year,” Larry Merlo, president and CEO at CVS said. “All of our core businesses performed in line with or above expectations, reflecting strong operational execution.

“As a result, we delivered strong growth and generated robust operating cash flow, which enabled us to continue to delever while returning capital to our shareholders,” he added.

Shares of CVS stock were up 4.93% as of 10:09 a.m. EST on Wednesday.