CVS Health has reported solid sales growth for the third quarter, but its bottom line was weighed down by a goodwill impairment charge that translated to a big loss for the company.
Total revenues rose 7.8 per cent to a record $102.9 billion during the quarter ended September 30.
However, the bottom line saw an operating loss of $3.5 billion and a net loss of just over $3.9 billion, primarily due to a $5.7 billion goodwill impairment charge related to the Health Care Delivery reporting unit. Excluding this, adjusted operating profit was $3.5 billion.
According to GlobalData MD Neil Saunders, the impairment underlines three things.
“First, the complexity of the CVS business remains an issue: there are, in our view, far too many disparate parts of the business which are hard to control.
“Second, the strides CVS wanted to make into primary healthcare are not as easy to achieve as was initially thought. And third, despite these things, the review and write-down show that CVS is at least trying to put its house into order, which we welcome,” he said.
By segment, pharmacy and wellness sales grew 11.7 per cent. Saunders noted this included some benefits from taking on Rite Aid’s prescription files and the organic transfer of some customers from the now-bankrupt chain.
The health care benefits segment saw sales increase 9.1 per cent, while health services sales rose 11.6 per cent.
Front-of-store sales, which are mostly retail, declined by a modest 0.1 per cent. Saunders said this was not a terrible result given the ongoing program of store closures and that comparable front-of-store sales increased 1.5 per cent.
“Once again, the closure of Rite Aid stores has been beneficial across many markets as it has driven more customers and trade through the doors of CVS,” the analyst continued.
He added, “What CVS needs to do to augment the numbers is create a much stronger retail proposition that is naturally attractive to people in terms of the range, service and store ambience.
“From our consumer research, we still see CVS coming in way below average on price, quality, inspiration, and assortment, which underlines the need for better thinking and sharper execution.”
Saunders also mentioned several “looming threats” for the company, including the rise of fast rural delivery from Amazon and others, the improvements being made to gas station convenience stores in rural areas, and the rise of alternative channels for prescriptions.
