CVS Names New CEO Amid Uncertain Retail Pharmacy Landscape

CVS has a new boss, but there’s still no cure for what’s ailing the business.

The US’ largest pharmacy chain appointed David Joyner, formerly head of its pharmacy benefit manager Caremark, as CEO, replacing Karen Lynch. This leadership change comes amid significant challenges in the retail pharmacy industry, including thin profit margins, store closures, and layoffs. And there ain’t a pill that can fix that.

What Ails You?

Pharmacies are grappling with declining reimbursement rates for prescription drugs. They typically purchase medications from wholesalers and are reimbursed by pharmacy benefit managers (PBMs) that negotiate discounts with insurers and drug manufacturers. CVS benefits from owning Caremark, one of the largest PBMs in the US. However, in the second quarter, CVS reported a 12% drop in adjusted operating income for its Pharmacy & Consumer Wellness segment, primarily due to reimbursement pressures. Walgreens has been faring worse: It saw its pharmacy income plummet nearly 50% year-over-year in its most recent quarter.

Despite owning health insurer Aetna, CVS is not immune to rising medical costs, which have impacted profitability. Its Health Care Benefits segment reported a 39% decrease in operating income, falling to $938 million year-over-year in the second quarter.

CVS’s stock has suffered significantly, down more than 25% this year, making it one of the S&P 500’s worst performers. Walgreens, however, leads the declines, with a nearly 60% drop in its share price. All this is to say that it’s cost-cutting time: 

• CVS plans to close 300 stores this year as part of a broader strategy initiated in 2021 to shutter 900 locations. Rite Aid has been closing more than 500 stores following its bankruptcy last year, while Walgreens announced it will close 1,200 stores over the next three years.
• At the start of this month, CVS announced that it will lay off 2,900 employees in an effort to cut costs. 

Front of House: The retail side of drug stores — candy, makeup, cheap toys you buy as a last-minute gift — isn’t faring much better. Increased competition from Amazon and other large retailers has made sure of that. And while no chain is specifically saying theft is a factor in store closures, most businesses have begun putting large amounts of inventory behind locked glass ever since the pandemic.