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CVS warns on profits
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June 27, 2001: 9:59 a.m. ET
Drugstore chain says 2Q, '01 earnings to miss mark due to economy
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NEW YORK (CNNfn) - Drugstore operator CVS Corp. warned Wednesday that its second-quarter earnings will fall short of forecasts, blaming current economic and business trends.
The No. 2 U.S. drugstore chain said it expects to earn 48 cents a share in the period, up from 46 cents a share a year earlier, but below the 52 cent-per-share forecast of analysts surveyed by earnings tracker First Call.
For the full year, it expects earnings per share of $1.92 to $1.96, rather than the $2.08 forecast. The company earned $1.80 a share in 2000.
The Woonsocket, R.I.-based company said it had seen a slowing in the growth of same-store sales, a closely watched retail measure of sales at stores open at least a year, as well as greater pressure on its gross margin, which reflects sales less the cost of the product sold.
"The current economic environment has impacted front-store sales, particularly high-margin seasonal and general merchandise categories," CEO Tom Ryan said. "While our pharmacy business remains healthy and vibrant in the vast majority of our markets, there are pockets of the country where we are experiencing a slower growth rate in pharmacy."
Ryan said in a conference call that weak consumer spending had hit the company's general merchandise segment -- what is known in the industry as front-end sales -- including such items as cosmetics and toothpaste.
"Clearly, we are disappointed with these developments, and we are taking the necessary actions to reaccelerate our growth," Ryan said. One way, he added, was to increase the number of store openings in 2002.
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CVS has more locations – over 4,100 -- and fills more prescriptions than any other drugstore chain in the U.S., but its sales are second to those of Walgreen Co. (WAG: down $1.80 to $35.00, Research, Estimates).
In the conference call, Ryan said he expects revenue growth in 2001 of 12 to 13 percent, and expects same-store sales to increase 8.5 percent in the second quarter and pharmacy same-store sales to increase 13.5 percent.
Shares of CVS (CVS: down $5.90 to $38.20, Research, Estimates) plunged more than 13 percent in midday trading Wednesday.
Merrill Lynch analyst Marc Husson cut his investment rating on CVS to "accumulate" from "buy" and cut his 2001 earnings per share estimate to $1.94 from $2.08 and his 2002 estimate to $2.33 from $2.45. Still, he was optimistic.
"We think the long-term attractiveness of this industry is still significant, and CVS should be able to leverage its... position to take advantage of this," Husson said. 
- from staff and wire reports
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