Tag: CVS Health Corporation (CVS)

Could CVS Health (CVS) Be a Safe Haven as Healthcare Costs Rise?

Posted on by The INO.com Team

Healthcare costs in the U.S. are surging, placing significant financial pressure on consumers, insurers, and providers. The growing demand for affordable, accessible care is reshaping the healthcare landscape, with innovation and efficiency becoming critical success factors. In this evolving environment, CVS Health Corporation (CVS) stands out for its comprehensive approach to addressing these challenges.

With operations spanning retail pharmacies, insurance services, and in-store clinics, CVS Health has strategically positioned itself as a central player in the healthcare system. This unique integration of services offers a competitive advantage, potentially making CVS an attractive option for investors seeking resilience amid rising costs and shifting industry dynamics.

Healthcare Industry Trends

The healthcare sector is grappling with various pressures, including higher prescription drug prices, increased utilization rates, and an aging population with chronic health conditions. According to industry reports, total healthcare spending in the U.S. is expected to continue its upward trajectory, rising 7%-8% in 2025, further emphasizing the need for innovative solutions to reduce costs without compromising care quality.

In recent years, there has also been a shift in consumer preferences toward convenience-driven care delivery models. Telehealth adoption has surged, and retail clinics are becoming a staple for basic medical needs. These trends reflect a broader move toward accessible, patient-centered care. Simultaneously, insurers are navigating the complexities of value-based care models and balancing costs with coverage.

CVS Health’s dual role as a payer through Aetna and a provider through its retail and clinical services allows it to adapt to these trends effectively. However, the company faces some of the same challenges as its peers, including rising utilization costs in its insurance business and the need to align reimbursement rates with increased medical acuity. Nevertheless, its strategic positioning offers significant opportunities to capitalize on these trends while addressing underlying industry pain points.

CVS Health’s Business Model: Integration as a Strength

CVS Health’s vertically integrated business model combines retail pharmacy operations, health clinics, and the Aetna insurance brand, enabling the company to provide a seamless healthcare experience. This integration enhances cost efficiencies and ensures that CVS captures value across multiple points in the healthcare delivery chain.

In its retail and consumer wellness segment, CVS dispenses prescriptions, offers vaccinations, and sells a range of health and wellness products. With more than one-fourth of the national market share in retail pharmacy scripts, the company has a robust footprint that facilitates both revenue growth and community engagement. The segment's $32.4 billion in Q3 2024 revenue, a 12% increase year-over-year, highlights its strong execution in meeting consumer demand.

The Health Care Benefits segment, which includes Aetna, is a critical growth driver. In Q3 2024, this segment recorded a 25.5% revenue increase due to membership growth in Medicare and exchange markets. However, profitability remains under pressure due to rising utilization costs and adjustments for risk in exchange products. These challenges underline the need for continued improvements in benefit design and cost control.

Growth in Services: Expanding Access to Care

CVS Health is actively investing in growth areas to solidify its position as a leader in healthcare delivery. Telehealth, for instance, has become an integral part of its offerings, enabling CVS to meet the increasing consumer demand for virtual care options. These digital services not only expand CVS’s reach but also improve care accessibility for underserved populations.

In-store clinics, branded as MinuteClinic, continue to play a vital role in addressing non-urgent healthcare needs. These clinics cater to patients seeking affordable and convenient care, reducing the burden on traditional healthcare facilities. CVS has also focused on enhancing its pharmacy services, particularly in specialty drugs and biosimilars, which have become essential in managing chronic and complex conditions.

Moreover, acquisitions like Oak Street Health and Signify Health demonstrate CVS’s commitment to value-based care. These platforms allow CVS to provide personalized care management and drive better outcomes for patients while optimizing costs. As Aetna members increasingly utilize these services, the synergies between CVS Health’s different business units become more apparent.

Financial Stability: A Mixed Bag

CVS Health’s financial performance reflects both its strengths and the challenges it faces in the current healthcare environment. In Q3 2024, the company generated $95.4 billion in revenue, a 6.3% year-over-year increase. The Pharmacy and Consumer Wellness and Health Services segments drove growth. However, the Health Care Benefits segment posted an adjusted operating loss of $924 million, reflecting pressures from elevated utilization and premium deficiency reserves.

Despite these setbacks, CVS has maintained shareholder value through consistent dividend payments, distributing $837 million in Q3 2024 alone. The company’s forward annual dividend of $2.66 per share yields 4.6%. The company also reported $7.2 billion in year-to-date cash flow from operations, showcasing its ability to generate strong cash reserves despite operational challenges. Although CVS’ leverage ratio of 4.6x is above its long-term target, management is taking steps to improve profitability and reduce debt over time.

CVS’ restructuring efforts, including store closures and workforce optimization, are expected to streamline operations and create cost savings. These measures, combined with a disciplined approach to benefit design, particularly in Medicare Advantage, should help stabilize the company’s margins in the coming quarters.

Investment Implications

For investors, CVS Health presents a mixed but compelling case. Its integrated business model and strong presence in growing healthcare segments position it as a resilient player in an industry undergoing significant transformation. The company’s investments in telehealth, value-based care, and retail clinics align with long-term trends favoring accessible and efficient care.

However, near-term challenges, particularly in the insurance segment, may weigh on profitability. Investors should monitor the company’s efforts to address utilization pressures and manage its leverage. CVS’ stable dividend history and market-leading position make it an attractive option for defensive investors seeking exposure to healthcare.

While the stock may face short-term volatility, it holds promise for long-term growth as CVS continues to refine its operations and capitalize on emerging opportunities. Gradual accumulation of shares during market dips could be a prudent strategy for those looking to invest in a healthcare sector leader.

 

Medicare for All: How Harris' Plan Could Reshape Healthcare Investments

Posted on by The INO.com Team

As Kamala Harris’s 2024 presidential campaign gains momentum, her aggressive stance on Medicare expansion and potentially eliminating private health insurance is drawing significant attention. Harris has been a long-standing advocate for Medicare for All, including supporting Bernie Sanders’ bill to eliminate private insurance for all age groups.

The ambitious plan by Kamala Harris could have profound implications for individual healthcare costs, such as out-of-pocket expenses for retirees and investment opportunities across the healthcare sector. This article delves into the ramifications for major medical stocks like CVS Health Corporation (CVS), Teladoc Health, Inc. (TDOC), Abbott Laboratories (ABT), and Johnson & Johnson (JNJ).

Kamala Harris’ Stance on Medicare Expansion

Over the years, Harris has consistently championed Medicare for all, aligning with Senator Bernie Sanders’s vision of a single-payer healthcare system. Her proposal envisions a significant expansion of Medicare, extending coverage to all Americans and eliminating the need for private health insurance. She has remained among the more outspoken Democratic politicians promoting government-led insurance programs.

In 2017, Harris was the first senator to co-sponsor Bernie Sanders’s bill, the Medicare for All Act of 2017. If enacted, that bill would abolish private health insurance for all age groups, including Medicare beneficiaries, and replace it with a government-run single-payer system to benefit every resident of the United States, including undocumented immigrants.

On January 21, 2019, Harris announced her intention to run for the 2020 Democratic nomination for President. A few days later, during a CNN town hall event in Iowa, she elaborated on her reasons for aiming to eliminate “inhumane” private insurance.

“Well, listen, the idea is that everyone gets access to medical care, and you don’t have to go through the process of going through an insurance company, having them give you approval, going through the paperwork, all of the delay that may require,” Harris said. “Who of us has not had that situation where you’ve got to wait for approval, and the doctor says, well, I don’t know if your insurance company is going to cover this. Let’s eliminate all of that. Let’s move on.”

Although Harris reversed herself multiple times in 2019, she remained committed to the broader goal of Medicare for All. On July 29, 2019, Harris unveiled a detailed outline of what she termed “my plan for Medicare for all,” which featured significant differences from both Bernie Sanders’s version and the various versions she had previously endorsed.

Like the Sanders bill, Harris’s new plan would eliminate employer-sponsored insurance, Affordable Care Act exchange plans, Medicaid, and other existing programs, replacing them with Medicare-based coverage. However, unlike Sanders’s proposal, Harris’ July 2019 plan would permit private insurers to continue offering Medicare Advantage-style coverage, albeit with lower reimbursement rates compared to traditional Medicare.

Additionally, while Sanders’s bill includes a four-year transition period to single-payer healthcare, Harris’s plan proposed a 10-year transition to the new system.

If Kamala Harris wins the 2024 presidential election, she is expected to advance her Medicare for All agenda, which could lead to significant changes in the U.S. healthcare system.

“She is a strong advocate for both [Social Security and Medicare] and is keen on expanding them,” stated Aaron Cirksena, CEO of MDRN Capital, a retirement planning firm. “This includes protecting benefits from any cuts and expanding the reach of coverage.”

“These plans may mean an increase in government spending and taxes, likely for upper-class earners,” Cirksena explained. “It may also mean lower out-of-pocket healthcare expenses and easier access to services for retirees.”

Implications for Healthcare Stocks

The proposed Medicare for all plan could lead to a significant restructuring of the healthcare sector, with wide-ranging economic implications. Expanding Medicare would likely result in a surge in government healthcare spending. It could also affect individual costs, including out-of-pocket expenses for retirees.

Moreover, the shift towards a more government-controlled healthcare system may create new investment opportunities in areas such as telemedicine, retail pharmacy services, and health technology. Companies that can adapt to the changing landscape and align with government priorities may find growth opportunities.

Insurers: CVS Health Corporation (CVS) is a prominent health solutions company broadening medical access for millions of people globally. The company provides private insurance through its subsidiary, Aetna, which offers a range of insurance products, including individual and family health plans, employer-sponsored plans, and Medicare Advantage plans.

The potential reduction in the role of private insurance under the Harris administration could impact CVS’ insurance operations, including Aetna. It might lead CVS to pivot more towards its retail pharmacy and healthcare services, influencing its strategic direction. CVS Health stands to benefit considerably from the proposed Medicare expansion, potentially boosting the company’s profitability and growth.

While there are several opportunities for CVS to benefit from Medicare expansion, the actual impact would depend on the specifics of the policy changes and how the company adapts to and capitalizes on these changes.

Telehealth Providers: Teladoc Health, Inc. (TDOC) can benefit from increased demand for telemedicine services under a Medicare for all plan. The company operates through Teladoc Health Integrated Care and BetterHelp segments, providing virtual healthcare services, including general medical, specialty medical, chronic condition management, and mental health, as well as enabling technologies and enterprise telehealth solutions for hospitals and health systems.

As access to healthcare is likely to become broader under Kamala Harris’ proposed plan, TDOC is positioned to cater to a growing patient base seeking virtual medical services, driving the company’s revenue streams and market reach.

Pharmaceutical and Medical Device Companies: Johnson & Johnson (JNJ) is a global leader in the healthcare industry, known for its extensive range of products spanning pharmaceuticals, medical devices, and consumer health. Johnson & Johnson stands to gain from Harris’ Medicare for All plan through increased demand for its healthcare products, as well as potential opportunities for strategic partnerships and government contracts.

The expanded Medicare coverage could enhance J&J’s market reach and provide a more stable financial environment for its diverse healthcare offerings.

Abbott Laboratories (ABT), another key player in medical devices and branded generic pharmaceuticals, could benefit from Kamala Harris’ proposed plan. Increased Medicare coverage might drive higher demand for medical devices and diagnostic tests. Abbott may also find opportunities for collaboration with government agencies and healthcare systems to integrate its solutions into the expanded Medicare framework, potentially enhancing its market presence.

Bottom Line

Vice President Kamala Harris’ Medicare for All proposed plan represents a transformative vision for the U.S. healthcare system, potentially reshaping individual healthcare costs and impacting major healthcare stocks. The expansion of Medicare promises reduced out-of-pocket expenses and broader coverage and provides opportunities for healthcare companies like CVS, TDOC, ABT, and JNJ.

Investors should stay attuned to the evolving policy landscape in the healthcare sector and consider how these developments might influence investment strategies and market dynamics.

CVS Health (CVS) Under Fire: How Will the Stock React to Pharmacist Backlash?

Posted on by The INO.com Team

Drugstore chain and pharmacy benefits manager CVS Health Corporation (CVS), with a market cap of $91.62 billion, has managed to navigate post-pandemic challenges with remarkable adeptness and resilience.

However, the specter of questionable working conditions looms large over pharmacists nationwide. Lengthy working hours, staff shortages, and an escalating workload often leave scant room for proper patient care, potentially leading to severe repercussions for pharmacists and their patients.

Waves of protest against what they perceive as substandard working conditions and unsafe patient care surged among CVS pharmacists in Missouri last Wednesday. About 22 CVS locations in Kansas City and pharmacies inside Target (TGT) stores were temporarily shut down late last week when pharmacists, supported by staff and additional healthcare personnel, raised their voices against overworking, arguing it compromised patient safety.

At the core of the matter lies understaffed pharmacies, which impede pharmacists’ ability to give patients adequate attention. This threatens the standards of care and advances the risk of medication errors. The non-unionized pharmacists called for limits on administered vaccine quantities, improved scheduling, and additional modifications.

In the face of scarce support and resources, many pharmacists cannot deliver optimal patient care. The protest led by CVS pharmacists aims to highlight these pressing issues and chart the course for a more sustainable, patient-oriented healthcare structure that prioritizes the well-being of pharmacists and their patients.

The Impact So Far

CVS shares tumbled 2.2% on Wednesday following the announcement of a second walkout by CVS pharmacists in Kansas City, MO, within a week.

Despite the corporation's apology for the delay in addressing their grievances and assurances of procedural improvements, recurring strike actions could detrimentally affect the quality of service delivery and impede its capacity to provide critical healthcare to consumers amid escalating COVID-19 cases and increased testing needs nationally.

The ongoing walkout might potentially cause turbulence in the COVID-19 booster shot rollout. Impact assessment remains uncertain as CVS pharmacists have not established the protest's duration nor its corollary effects on Target pharmacy booths and standalone drugstores.

Amid severe staffing constraints, pharmacists struggle to manage the soaring demand for COVID-19 and seasonal flu vaccinations and regular prescription needs. Consequently, customers should anticipate possible delays.

The series of protests have culminated in diminished customer satisfaction and erosion of consumer confidence, compelling some to transition to alternate pharmacy providers due to the ongoing challenges at CVS.

How CVS Might Be Affected

In the ongoing scenario, if the walkout continues, it risks not only eroding customer trust and precipitating a downward slide in sales, but it could also taint the company's reputation and brand value. This situation might indicate ineffective management, strained labor relations, and a compromised corporate culture.

Trapped in this crisis, CVS' ability to surpass rivals and its market dominance within the healthcare sector could face significant obstacles. The walkout could inflate the financial burden on CVS due to increased costs and liabilities related to potential legal ramifications arising from contract breaches or substandard practices.

Furthermore, the company’s operational efficiency and productivity are at stake as disruptions in supply chains and work processes threaten its smooth operations. These factors could collectively destabilize the company's financial stability and outlook. If unresolved over extended periods, the walkout could lead to substantial wealth erosion for shareholders.

However, amid this predicament, a few silver linings should be considered. Here are additional elements that could potentially shape CVS' trajectory in the forthcoming months:

Recent Developments

CVS, holding its position as America's largest drugstore chain, has pledged allegiance to the rising trend of biosimilars with the inception of its wholly-owned subsidiary, Cordavis. This new entity aims to liaise directly with manufacturers to commercialize or co-produce biosimilar products, reflecting CVS' strategy to mitigate drug costs for consumers by developing biosimilar medications and conducting direct negotiations with pharmaceutical companies.

This development signals promise for consumers and investors, as CVS harbors both an industry opportunity and the extensive scale required to compete effectively with eminent drugmakers.

The repercussions of the pandemic have catalyzed a paradigm shift in the U.S. drugstore industry, mainly characterized by consolidation trends. As we progress beyond this global crisis, traditional retail has faced challenges regaining traction, particularly in comparison with more robust sectors. Amid this scenario, drugstores have emerged as epicenters for evolutionary shifts and potential mergers.

CVS has recently stepped up its strategic initiatives by actively seeking partnerships, pursuing growth, and implementing a consolidation plan. As a result of a policy adjustment initiated in 2021, hundreds of CVS branches are set for closure as part of the company's cost-cutting measures to pre-empt potential losses.

In late 2021, the organization confirmed that it was assessing changes in population dynamics, consumer purchasing trends, and projected health requirements to assure the optimal placement of its stores for both customers and corporate viability.

CVS plans to lessen store saturation in certain areas as part of these efforts, leading to the shuttering of roughly 300 stores annually over the next three years. This strategic decision came as CVS aimed to allocate resources better and adjust to changing customer behaviors. The company anticipates that this course of action will close nearly 900 locations by the end of 2024.

Robust Financials

CVS’ total revenues increased 10.3% year-over-year to $88.92 billion in the fiscal second quarter that ended June 30, 2023, with product revenue rising 6.6% year-over-year to $60.54 billion. The company reported an adjusted operating income of $4.48 billion. Moreover, its adjusted EPS amounted to $2.21.

Attractive Valuation

CVS’ forward EV/EBITDA of 7.92x is 36.8% lower than the 12.54x industry average. Its forward EV/EBIT and Price/Sales multiple of 8.99 and 0.26 are 44.1% and 93.3% lower than the industry averages of 16.07 and 3.86, respectively.

Robust Growth

CVS’ revenue grew at CAGRs of 8.7% and 12.6% over the past three and five years, respectively. In addition, its total assets grew at 2% and 13.4% CAGRs over the past three and five years, respectively.

High Profitability

CVS’ trailing-12-month EBITDA and EBIT margin of 5.42% and 4.17% are 3.4% and 896.2% higher than the 5.25% and 0.42% industry averages. Moreover, its trailing-12-month levered FCF margin of 5.33% is significantly higher than the industry average of 0.26%.

Growing Institutional Ownership

CVS’s robust financial health and fundamental solidity make it an appealing investment opportunity for institutional investors. Notably, several institutions have recently modified their CVS stock holdings.

Institutions hold roughly 77.9% of CVS shares. Of the 2,413 institutional holders, 1,090 have increased their positions in the stock. Moreover, 118 institutions have taken new positions (9,005,031 shares).

Price Performance

Even though CVS’ shares have plunged 28.2% over the past year, over the past three months, the stock gained 1.6%. Moreover, shares of CVS have gained 3.7% over the past month.

Wall Street analysts expect the stock to reach $91.53 in the next 12 months, indicating a potential upside of 31.2%. The price target ranges from a low of $80 to a high of $110.

Favorable Analyst Estimates

For the fiscal third quarter ending September 2023, analysts expect CVS’ revenue to increase 9% year-over-year to $88.43 billion, while its EPS is expected to come at $2.13. Moreover, for the fiscal year ending December 2023, analysts expect CVS’ revenue to increase 9.1% year-over-year to $351.77 billion, and EPS is expected to come at $8.60.

Furthermore, it has surpassed the consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.

Bottom Line

CVS stands in a formidable financial position, strengthened by optimistic analyst projections, attractive valuation metrics, solid profitability, and notable progress potential. The company also possesses additional commendable characteristics.

As proof of CVS’s commitment to rewarding its investors, it boasts an unbroken track record of paying dividends for the past 25 years. The firm recently announced its forthcoming quarterly dividend of $0.605 per share on common stock, payable to the shareholders on November 1, 2023.

It pays a $2.42 per share dividend annually, translating to a 3.39% yield on the current share price. Its four-year average dividend yield is 2.70%. The company’s dividend payouts have grown at a CAGR of 5.8% over the past three years and 3.4% over the past five years.

CVS' dividends seem well-covered, signaling prudent and efficient reinvestment of earnings by management. As of June 30, 2023, the company recorded retained earnings amounting to $58.87 billion, which can be utilized to invest in furthering its growth opportunities.

Nonetheless, the recent protests underline the urgent need for revamping the pharmacy industry with a renewed focus on pharmacist and patient safety. It is crucial for the management to promptly respond to these concerns to maintain stability within the company and optimally leverage ongoing industry trends.

CVS Health (CVS) Shakes up Pharma Market With Potential Biosimilar Game-Changer: Buy or Hold?

Posted on by The INO.com Team

Biosimilars have been gaining traction lately as healthcare costs continue to rise. Biosimilars are attractive for healthcare companies as they can vie for a more significant share of the pie, given the extensive market for critical life-saving drugs. Fortune Business Insights expects the U.S. biosimilars market size to grow at a CAGR of 40.2% to reach $100.75 billion by 2029.

CVS Health Corporation (CVS) has jumped on the biosimilar bandwagon by launching a wholly-owned subsidiary named Cordavis, which will work directly with manufacturers to commercialize and/or co-produce biosimilar products. A biosimilar is a biologic medication highly similar to a biologic medication already approved by the U.S. Food and Drug Administration (FDA) – the original biologic (also called the reference product).

Biosimilars are considered safe and effective as they are made from the same types of resources and do not have any meaningful differences from the reference product. Cordavis will not undertake any research and development of drugs. Cordavis has contracted with Novartis AG’s (NVS) Sandoz to commercialize and co-manufacture Hyrimoz, a biosimilar for Humira, during the first quarter of fiscal 2024, under a Cordavis private level.

The list price of this biosimilar to be brought by Cordavis will be more than 80% lower than the current list price of Humira. CVS’ CFO Shawn Guertin said, “Cordavis is a logical evolution for us and will help ensure sufficient supply of biosimilars in the U.S. and support this market now and in the future, while ultimately improving health outcomes and reducing costs for consumers.”

CVS’ Chief Pharmacy Officer and Co-President of the Pharmacy and Consumer Wellness segment, Prem Shah, said, “We have a strategy to go after the products where we believe we can create the most value for customers, and for the US marketplace where we can increase the competition, lower the cost, and get that cost to consumers, and get these products to consumers at lower prices.”

JPMorgan analyst Lisa Gill said the contract with Sandoz is a volume-based transaction with only upside for CVS. In a note, she stated, “CVS has committed to purchasing a certain amount of volume from Sandoz, and management noted there are no additional capital commitments. CVS anticipates Cordavis will generate positive margins for commercializing the product, but it is too early to size the potential contribution.”

With sales of Humira totaling more than $21 billion last year, CVS now can grab a slice of this enormous market for the expensive and vital drug.

Here’s what could influence CVS’ performance in the upcoming months:

Mixed Financials

CVS’ total revenues for the second quarter ended June 30, 2023, increased 10.3% year-over-year to $88.92 billion. For the six months ended June 30, 2023, its net cash provided by operating activities increased 48.2% over the prior-year quarter to $13.35 billion.

Its adjusted operating income declined 10.4% year-over-year to $4.48 billion. The company’s adjusted income attributable to CVS Health declined 14.7% year-over-year to $2.85 billion. Also, its adjusted EPS came in at $2.21, representing a decline of 12.6% year-over-year.

Mixed Analyst Estimates

Analysts expect CVS’ EPS for fiscal 2023 to decline 1.2% year-over-year to $8.59. Its fiscal 2023 revenue is expected to increase 8.9% year-over-year to $351.01 billion. Its EPS for fiscal 2024 is expected to increase 1.2% year-over-year to $8.69. On the other hand, its fiscal 2024 revenue is expected to decline 2% year-over-year to $344.07 billion.

Discounted Valuation

In terms of forward EV/Sales, CVS’ 0.43x is 87.8% lower than the 3.51x industry average. Its 7.54x forward EV/EBITDA is 42.3% lower than the 13.08x industry average. Likewise, its 8.57x forward EV/EBIT is 49.2% lower than the 16.86x industry average.

Mixed Profitability

In terms of the trailing-12-month levered FCF margin, CVS’ 5.33% is significantly higher than the 0.22% industry average. Likewise, its 1.41x trailing-12-month asset turnover ratio is 273.4% higher than the industry average of 0.38x. Furthermore, its 5.42% trailing-12-month EBITDA margin is 5.2% higher than the industry average of 5.15%.

On the other hand, CVS’ 0.84% trailing-12-month Capex/Sales is 81.4% lower than the 4.52% industry average. Likewise, its 15.64% trailing-12-month gross profit margin is 71.8% lower than the 55.53% industry average.

Bottom Line

CVS’ entry into the world of biosimilar products through its newly launched subsidiary Cordavis is expected to help the company boost its revenues and improve its profit margins. However, the company faces competition from other companies making a biosimilar of Humira.

Moreover, the company has yet to communicate what it intends to do after launching the Humira biosimilar during the first quarter of fiscal 2024. Until the company shares its plans, it could be risky to invest in the stock.

Given its mixed fundamentals and profitability, it could be wise to wait for a better entry into the stock.

With Major Retail Stores Closing Down in 2023, What’s Next for These Stocks?

Posted on by The INO.com Team

U.S. domestic consumption has been on a roller coaster ride over the past three years. People have gone from not being free enough to spend practically-free money like there’s no tomorrow.

That, in turn, led to a not-so-transitory inflation, the hottest since the 1980s, forcing the Federal Reserve to implement ten successive interest-rate hikes in a little over a year to take the Fed funds rate to a target range of 5% to 5.25%.

While the consumer price index only grew by 4% year-over-year, which is the slowest in 2 years, the picture wasn’t as optimistic when volatile food and energy prices were excluded. The core CPI was still 5.3% over the previous year, indicating that consumers still find their budgets stretched.
With the stash of stimulus cash fast dwindling, average American consumers have been forced to rein in their urge to splurge to prevent inflation from biting harder. The Survey of Consumer Expectations for April by the New York Fed showed that the outlook for spending fell by half a percentage point to an annual rate of 5.2%, the lowest since September 2021.

This further explains why even a 0.4% recovery in retail sales for April, after two consecutive months of decline, still fell short of Dow Jones’ estimate of 0.8%.

We had discussed earlier the implications of this slowdown for mid-tier retailers and the prospects of the retail industry vis-à-vis travel and hospitality.

Given the fact that legacy retailers such as Bed Bath & Beyond Inc. couldn’t be rescued (and has subsequently filed for Chapter 11 on April 23), and retailers are encouraging gamified shopping on Livestream, we will look at a few embattled retail stocks in the context of the accelerated pace of store closures with the ascent of online retail.

On May 26, the Illinois-headquartered integrated healthcare, pharmacy, and retailing company Walgreens Boots Alliance, Inc. (WBA) announced its decision to slash its corporate staff by about 10% in an effort to streamline operations.

The second-largest pharmacy store in the United States has been around since 1901. However, the financial hardships it has faced during the pandemic resulted in lost market share, which the retailer has begun clawing back with acquisitions of healthcare services operator VillageMD and urgent-care provider Summit Health and the launch of initiatives, such as drone delivery.

However, the empowerment of each store to serve broader areas more remotely has come at the cost of a reduction in the total number of locations. In October, the company announced a slew of store closures across states, such as New York, Kentucky, Florida, Massachusetts, and Colorado.

WBA’s stock has lost more than 22% of its value over the past six months, relative to an almost 9% gain for the S&P 500 over the same period.

Diversified health solutions company CVS Health Corporation (CVS) has been busy aligning itself with the pandemic-catalyzed trend of patients using digital technologies to manage their health. To this end, the retailer has acquired the well-known home healthcare agency Signify Health to further its medication delivery reach.

However, this reorganization has also been accompanied by store closures. While the economic stagnation caused by the pandemic caused CVS to lose over 20 stores towards the end of 2021, the company has since decided to proactively close 300 locations each year for the next three years as it hones in on digital strategy and implements a "new retail footprint strategy aligned to evolving consumer needs."

With the strategic realignment yet to bear fruit, store closures in Pennsylvania, North Carolina, Maryland, California, Florida, Texas, and Georgia, among other states, have also been accompanied by around 29% slump in CVS’ stock price, compared to 9% gain for the S&P 500.

The muted retail outlook discussed earlier has also been reflected in the first quarter earnings of Macy's, Inc. (M). Although the mid-tier retailer surpassed its earnings estimates for the quarter, a spring pullback has caused it to miss its revenue estimates and slash its top- and bottom-line guidance for the entire year.

Moreover, in February 2020, the retailer announced its three-year restructuring plan, pursuant to which it had decided to close 125 of “its least productive stores.” With closures in 2020, 2021, and 2022, M has, in the words of CEO Jeff Gennette, begun its ‘final stretch’ of store closures with four stores: one each in Los Angeles, California; Fort Collins, Colorado; Gaithersburg, Maryland; and Kaneohe, Hawaii.

Given the prevailing demand softness in the unfavorable macroeconomic environment, M expects sales of $22.8 billion to $23.2 billion for the year, down from a previous range of $23.7 billion to $24.2 billion, while expected earnings per share of $2.70 to $3.20 is a major reduction from the previous guidance of $3.67 to $4.11.

M stock has plummeted by around 24% over the past six months, compared to the S&P500’s 9% gain over the same period.
Games and entertainment retailer GameStop Corporation (GME) was at the center of an unprecedented hype created by retail investors on social media forums when money was practically free, and inflation was ‘transitory.’

The hype created by an army of amateur traders in 2021 had less to do with the fundamentals of the company and more to do with the excitement of trading and a desire to short-squeeze professional speculators who were betting against it.

With online gaming more a norm than an exception, GME, which has been around since the 1980s, has seen a dramatic decrease in sales, resulting in many stores closing down and the company’s decision to transition into an exclusively online retailer.

In the fiscal first quarter that ended April 29, GME reported revenue of $1.24 billion, down from $1.38 billion in the year-ago period. Sales in the United States, Canada, and Australia dropped by 16.4%, 18.5%, and 8.9%, respectively, compared to the year-earlier period. This coincided with CEO Matthew Furlong's sudden firing and Ryan Cohen's appointment as executive chairman.

Since many e-commerce platforms offer viable alternatives for purchasing merchandise and hardware sold by the company, it is unclear how GME, with its own platform and fleet of e-commerce stores, would be able to differentiate itself from other players in this space and find its path to profitability.