Walmart: Pharmacies weighing down corporate profits

August 21, 2015

Walmart is blaming lower margins in its pharmacy business for holding down overall corporate profits.

Walmart is blaming lower margins in its pharmacy business for holding down overall corporate profits, but the world’s largest retailer said it is still profitable has no plans to drastically alter its pharmacy business.

Walmart officials said the smaller margins can be attributed to lower reimbursement rates from pharmacy benefit managers (PBMs), and because the Affordable Care Act has increased the number of Americans with health insurance. Typically, cash purchases have a higher profit margin than prescriptions purchased through insurance.

Still, a Walmart spokesperson said the company has no plans to follow the lead of Target Corp., which recently agreed to sell its pharmacy division to CVS Health.

Please see: CVS buying Target’s pharmacies, clinics

“We feel the decision we’ve made to run our own pharmacies is right for our business and shareholders,” Walmart spokesman Randy Hargrove told Reuters.

Walmart lowered its earnings forecast to between $4.40 and $4.70 per-share. The earnings forecast had originally been from $4.70 to $5.05 per-share. 

The retailer said the decline in the forecast was due to both lower pharmacy margins and increased in-store theft.

 

Walmart’s Chief Financial Officer Charles Holley said pharmacy margins were falling due to lower reimbursement on “some of the main drugs.” He did not specify which drugs.

Ross Muken, an analyst at Evercore ISI, told Reuters that Walmart probably just concluded contract negotiations with a PBM and had to readjust its pharmacy-earning forecast due to agreed-upon lower reimbursement rates.