The big three drug chains – CVS, Walgreens and Rite Aid – continue to close stores at a record pace as they face flat same store sales and generally declining earnings.
Earlier this year, chain drug leader CVS Health announced it would shutter 900 stores over the next three years. That’s about 9 percent of its nearly 10,000 drug stores nationally. A spokesperson for the Woonsocket, RI-based company cited local market dynamics, population shifts and a community’s store density as contribution factors in the decision. Additionally, the growth of overall online competition played a role in the move. The company also noted that it wants to convert more of its stores to health care destinations.
With acquisitions of Aetna Insurance, Signify Health and Oak Street Health in recent years, CVS has focused more on providing oversight of other important pieces related to healthcare. Moreover, its ownership of pharmacy benefit management firm CVS Caremark has allowed the company to become a major player on the wholesale side of the drug business.
Because of the strength and versatility of its portfolio, CVS’s sales and earnings were the best among its peers, but not without challenges. First quarter earnings for the period ended March 31, 2023 were $2.14 billion, down slightly from $2.36 billion netted in the corresponding period in 2022. Overall sales increased from $85.28 billion in Q1, a significant gain from the $76.83 billion amassed last year. Its pharmacy and consumer wellness unit (which includes CVS retail stores) grew 12 percent to $25.88 billion. The company said increased prescription volumes and higher prices more than offset diminishing revenue from dispensing fewer COVID-19 vaccines and tests.
At Walgreens, declining third quarter earnings were the catalyst behind the Deerfield, IL drug merchant’s decision to close 150 of its approximately 8,900 U.S stores over the next 14 months. The drug chain is part of parent firm Walgreens Boots Alliance, which will close an additional 300 units in the U.K. Profits declined 26 percent during Q3 to $3.2 billion and were particularly impacted by a $113 million loss in its healthcare division (Village MD, Summit Health). Much like CVS, Walgreens has many stores that are within close proximity of each other.
At beleaguered Rite Aid, the beleaguering continues. The Philadelphia, PA-based drug chain, which closed 145 stores during the past 12 months, said it expects further stores closings after a poor Q1 earnings report, in which the company lost $306.7 million vs. a $110.2 loss in the same period last year. Overall sales also dipped by approximately $350 million to $5.65 billion in the 13-week period. At its retail pharmacy division, which includes more than 2,300 units, comp stores revenue increased 3.4 primarily on the strength of increased prescription prices.
Elizabeth “Busy” Burr, who was named interim CEO in January after Heywood Donigan departed, said it might be three more years until consistent, positive numbers can be achieved.
“We continue to believe we are on track to achieve adjusted EBITDA growth in fiscal years 2025 and 2026. Our first quarter results were driven by strong scripts growth, solid pharmacy margins and early progress with our turnaround program, which offset underperformance on front-end sales in the retail pharmacy segment and a higher than expected medical loss ratio at Elixir Insurance,” said Burr who has also served as a Rite Aid director since 2019.
All three drug chains were also negatively affected by financial settlements made with several states over opioid abuse issues at their pharmacies. That collective settlement payout number currently stands at more than $10 billion and is expected to increase as more jurisdictions await judgments or settlements over other opioid-related lawsuits.