CVS is the latest chain to suffer the tragic fate of many others in the modern retail fable by closing 46 stores across 16 states, last month. According to a company spokesperson, it was a decision made “after a thorough review of each store’s lease obligations and financial performance, among other factors.”
These factors include things like underperformance at a surprising number of stores. With that, CVS said it had to make a decision to address the dragging performance as part of new “store realization” plan. And part of that plan also includes prescriptions getting transferred to nearby CVS Pharmacy locations as well as working to relocate employees impacted by the closures to other nearby stores.
In its US Securities and Exchange Commission regulatory filings, CVS Health writes, “As a result, management determined that there were indicators of impairment with respect to the impacted stores, including the operating lease right-of-use assets. Accordingly, an interim long lived asset impairment test was performed. The results of the impairment test indicated that the fair value of each store asset group was lower than the carrying value.”
The filing goes on to say, “During the three months ended March 31, 2019, the company performed a review of its retail stores and determined it would close 46 underperforming retail pharmacy stores during the second quarter of 2019.”
Fortunately, the closings only represent a very small percentage of CVS stores. In case you did not know, the pharmacy chain has more than 9,900 locations. Still, the overall cost of these closures will be around $135 million.
What might be most interesting about this incident is that CVS first disclosed these plans on the heels of reporting a 35 percent year-over-year increase in first quarter revenues, which came in at $61.6 billion.
CVS president and CEO Larry Merlo comments, “We generated strong first quarter results, providing positive momentum to start the year. Following the close of our Aetna acquisition in late November, our first full quarter of combined operations was a success in many ways. In the quarter we continued to advance our integration efforts while beginning to launch new innovations.”