CVS Expects Sales Boost From Covid-19 to Wane

Covid-19 vaccinations, in-store testing and take-home test kits made up about 35% of operating profit for CVS’s retail segment in the fourth quarter. On an adjusted basis, the company posted earnings of $1.98 a share, beating analyst expectations of $1.83 a share, according to FactSet.

The company maintained its guidance for the current year of adjusted earnings of $8.10 to $8.30 a share, saying that benefits from Covid-19-related sales could wane, especially in the second half of 2022. On a conference call with investors Wednesday, executives said they didn’t expect the authorization of a new Covid-19 booster shot this year.

CVS stock fell more than 5% in Wednesday trading, the biggest decline among S&P 500 companies. “Given that CVS maintained the ’22 guidance range despite the large Covid benefit this quarter, in our view, the Covid benefit is likely to moderate,” said analyst

Steve Valiquette

at

Barclays.

For the current year, CVS expects vaccine volume to fall 70% to 80% versus last year and in-store Covid-19 testing to fall 40% to 50%, Chief Financial Officer

Shawn Guertin

told analysts on the conference call. It expects to sell more at-home tests in 2022 compared with the previous year, he said.

CVS executives say they have won over new customers throughout the pandemic and they expect some of those shoppers to stick around. “We have seen a lot more traffic in the stores and that’s manifesting itself in more prescriptions” and spending, Mr. Guertin said.

CVS, drugstore rival

Walgreens Boots Alliance Inc.,

WBA 0.13%

grocery chains and big-box stores such as

Walmart Inc.

WMT -0.29%

have played prominent roles in the U.S. effort to distribute Covid-19 vaccinations across the country. Many have also been crucial to the federal effort to make available rapid, at-home Covid-19 tests, which were outstripped by demand in the latest quarter as Americans sought to get tested around the holidays.

Before the pandemic, CVS and other drugstores were struggling to fend off a growing number of online rivals. Covid-19 has proved a welcome tailwind.

Now CVS is in the midst of trying to remake itself as a broad healthcare provider. The retailer said last year it would close about 900 of its roughly 10,000 stores over three years and open more primary-care clinics.

CVS plans to transition locations into three types: primary-care clinics, so-called health hubs that offer more routine health services and retail pharmacies, Chief Executive

Karen Lynch

said Wednesday. The company has said it aims to hire more doctors to bring that plan to life. CVS is also evaluating acquisition options in the space, Ms. Lynch said.

CVS is initially targeting primary-care providers, but it also has interest in providers of home-health services, she said later in an interview. The company’s preference is finding regional or national service providers and groups with experience in working with patients on Medicare insurance. “We won’t be able to scale fast enough if we do onesie, twosies,” Ms. Lynch said, referring to smaller, local practices.

The company’s acquisition criteria includes companies with strong technology capabilities, a strong management team and a pathway to profitability, she said.

Staffing shortages have stressed CVS and Walgreens as pharmacists and pharmacy technicians have sought to juggle Covid-19 testing and vaccines with filling prescriptions and serving customers.

The retailer had significant hiring through the year, Ms. Lynch said, including a one-day virtual event that attracted 45,000 new workers. It dealt with Omicron infections among workers, she said, but maintained strong opening hours. Walgreens and CVS shut some pharmacies on weekends during the Omicron surge.

Last year, CVS said it would raise starting wages for workers to $15 an hour by this July. “I continue to evaluate that minimum wage to see if there’s more that we could or should be doing as we continue to address labor shortages in the country,” Ms. Lynch said.

The Woonsocket, R.I.-based company has seen its costs rise, in part because of wage increases, along with its sales over the past year. Total cost of products sold rose to $46.38 billion in the quarter, up from $42.45 billion a year earlier.

For the three months ended Dec. 31, CVS said sales in its retail business rose 13% from a year earlier to $27.11 billion.

The company posted a quarterly profit of $1.31 billion, or 98 cents a share, up from $973 million, or 74 cents a share, a year earlier.

Total revenue, which includes CVS’s health-insurance and pharmacy-services businesses, increased 10% from a year earlier to $76.6 billion, the company said. Analysts surveyed by FactSet expected sales of $75.66 billion.

CVS’s fourth-quarter results included an impairment charge of $1.4 billion related to the company’s store-closure plan.

—Anna Wilde Mathews contributed to this article.

Write to Sarah Nassauer at [email protected] and Will Feuer at [email protected]