Woonsocket-based CVS Corp., the second largest drugstore chain in the country, behind Walgreen, and one of Rhode Island’s largest employers announced plans to close 200 stores and cut jobs in the first quarter of 2002, after noting that its profits had fallen substantially in the third quarter.
Todd Andrews, a CVS spokesperson, said he was unable to say last week which stores would be shut down. The company is also expected to close one of its ten distribution plants. CVS has stores in 32 states and a total of 4,135 retail and specialty pharmacy stores.
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“We expect the store closings to represent a broad range of markets,” said Andrews.
Some of the cuts will come at the company’s corporate offices in Woonsocket, said Andrews.
“We will be eliminating some positions there, but they account for less than 2 percent of our total Rhode Island employment, which is 5,200,” he said.
Andrews said that by the end of this year, the company’s total employment in Rhode Island should actually show a gain.
“We are at the same time creating jobs and will end up with positive growth,” he said. “We expect to grow in the future and push into new markets.”
Andrews said that since 1997, the number of CVS employees in Rhode Island has increased by 36 percent.
For the third quarter ended September 29, 2001, the CVS reported net earnings of $123.7 million, or $0.30 per diluted share, down 16.0 percent from $147.2 million, or $0.36 per diluted share, during the third quarter of 2000. Prior-year results exclude a $19.2 million nonrecurring gain for settlement proceeds received from a class action lawsuit. Including the gain, net earnings for the third quarter of 2000 were $158.7 million, or $0.39 per diluted share.
On September 21, 2001, CVS announced that it expected to report diluted earnings per share for the third quarter of 2001 in the range of $0.30 to $0.32.
Total sales for the third quarter of 2001 increased 10.1 percent to $5.4 billion, up from $4.9 billion during the third quarter last year. Same store sales rose 7.6 percent for the quarter, with pharmacy same store sales increasing 11.8 percent and front-end same store sales up 0.3 percent. Pharmacy sales were 66.6 percent of total sales for the quarter, with third party prescription sales representing 90.6 percent of pharmacy sales. During the quarter, CVS opened 29 new stores and relocated 34 others.
Tom Ryan, chairman, president and chief executive officer of CVS, said he was “disappointed” by the third quarter results, but “committed to taking the necessary actions to improve performance and restore healthy long-term growth.”
“With that in mind, we have completed a thorough analysis of our business and are today announcing a series of actions to best position CVS for the future,” said Ryan. “These steps will better focus our company on leveraging the substantial opportunities in the drug store industry, by strengthening our existing operating base and enhancing retail execution, while continuing our entry into new high-growth geographic markets.”
The company’s plan includes a series of sales generation and expense reduction initiatives, including:
-Undertaking a store consolidation program, under which approximately 200 stores will be closed during the first quarter of 2002.
-Closing one of CVS’s ten distribution facilities and one of ProCare’s two mail order facilities.
-Continuing expense management, including staff reductions related to the closings and other streamlining initiatives.
-Continuing CVS’s expansion into new geographic markets that will provide platforms for long-term growth.
-Implementing a series of initiatives focused on improving in-store service.
-Integrating its ProCare specialty pharmacy business and its pharmacy benefit management unit (PBM), PharmaCare.
In connection with these actions, CVS expects to record a pre-tax restructuring and asset impairment charge of approximately $350 million, or $0.56 per diluted share, in the fourth quarter of 2001.
Ryan reiterated his confidence in the company as a whole.
“Our business is fundamentally sound and growing,” he said. “These actions will address the isolated issues we have faced this year. CVS has a proven track record”
CVS also announced that David Rickard, currently executive vice president and chief financial officer, would be named chief administrative officer in addition to his current responsibilities. Rickard is assuming responsibility for human resources, government and community relations, and corporate communications.
Fourth quarter and 2002 outlook
Based on current sales and gross margin trends, CVS now expects to report diluted earnings per share for the fourth quarter ending December 29, 2001 in the range of $0.23 to $0.28, excluding the restructuring and asset impairment charge noted above. Total sales are expected to increase approximately 8-9 percent and same store sales are expected to rise approximately 7-8 percent. Based on these revised fourth quarter expectations, full-year diluted earnings per share are now anticipated to be in the range of $1.55 to $1.60, excluding the restructuring and asset impairment charge.
According to a company press release, CVS expects fiscal 2002 to be a transition year, as the benefits of the actions described above take hold. Diluted earnings per share for the 2002 fiscal year are now anticipated to grow in a range of 8-10 percent, including the benefit of approximately $0.10 per diluted share related to the charge as well as the impact of the change in accounting for goodwill. Longer term, the company’s plan is designed to generate sustainable earnings growth of 12-15 percent.
