CVS Health is planning an increased focus on beauty as part of its efforts to improve retail performance at stores.
“The retail side of the operation has a significant role to play in helping to drive up both sales and profits,” wrote Håkon Helgesen, analyst at GlobalData Retail. “In our view, this is a neglected part of CVS’ business and one which, as a result, performs well under its potential … Relatively few retail shoppers see CVS as a destination in its own right, even for categories like beauty. Given the scale of CVS, which puts its stores in easy reach of most Americans, this is a massive lost opportunity.”
Helgesen contends the reason is a “weak retail proposition.”
“CVS is now addressing its retail challenges head-on through a new retail format which it is rolling out to around 70 stores over the course of this year,” Helgesen wrote. “The refresh will also see the introduction of an expanded selection of beauty and health and wellness merchandise, including more of a focus on healthy snacks. New brands, like Tigi Cosmetics, will be introduced in an attempt to elevate the beauty offering and attract younger shoppers.”
“We remain focused on growing our beauty, health-care and personal care businesses, and continue to enhance our digital presence to increase engagement with our health and beauty shoppers,” said CVS chief executive officer Larry J. Merlo on the company’s earnings call Tuesday.
“Store brands also remain an area of both strength and opportunity, and our store brands represented 22.6 percent of front store sales in the quarter; that’s up about 80 basis points from a year ago,” Merlo continued. “We’ve been growing and gaining penetration in health care, beauty, personal care and edibles by focusing on providing high-quality value alternatives.”
CVS posted an 18.8 percent increase in net earnings for the second quarter, to $1.1 billion. The business reported net revenues of $45.7 billion for the second quarter, up 4.5 percent. CVS’ retail operations posted a 2.2 percent year-over-year decrease in sales, to $19.6 billion. The dip was driven by a 2.6 percent same-stop sales decrease, as well as an increase in the generic dispensing rate and reimbursement pressure, the company said. Front store same-store sales were hurt by softer traffic.
CVS is projecting earnings per share of $4.92 to $5.02 for 2017.