CVS stock rises on 2022 guidance, Rent the Runway shares fall on Q3 losses

Yahoo Finance Live anchors break down the latest market trends from CVS, Rent the Runway, and Stitch Fix.

Video Transcript

JULIE HYMAN: Let's take a look at some individual movers as well. CVS an interesting one here this morning. The company having an investor day today, coming out with some announcements ahead of that, including the announcement that it's going to authorize a buyback for the first time going back to 2017. It's a buyback authorization of up to $10 billion. It's also going to boost its annual dividend by 10%. And the company is also coming out with some forecasts as well.

All of this is helping boost the stock, Brian Sozzi.

BRIAN SOZZI: Yeah. This is really, Julie and Brian, the first major attack plan laid out by CVS Health. CEO Carol Lynch who took over February 1 of this year, a really extensive plan. And this webcast, their investor day, is going on as we speak here.

But guidance for the balance of this year, they raised their guidance in terms of sales and operating profits. Both are ahead of consensus for the balance of this year. That checked some boxes. And then next year, CVS outlining about 304 billion to 309 billion in sales, earnings of 8.10 to 8:30 a share. The Street was that 8.24 a share in terms of earnings. But it looks like really well thought out and planned for them.

And I will note this, they are closing, they previously announced a couple of weeks ago, 900 pharmacies. And I think this is something you're going to see from CVS, probably soon from Walgreens, more just a pruning of the store bases for these chains. They have grown out of control the last decade here. And I think you have a lot of stores that no longer make sense, given changes in the population and the fact that a lot of these stores were open pretty much right next to each other in urban areas.

I think you have new CEO in Karen Lynch at CVS and new CEO Roz Brewer at Walgreens with fresh eyes, fresh perspectives here. So I think you'll see a pruning of those store bases.

BRIAN CHEUNG: Yeah. And the other thing too is just the guidance raise, the interval by which they did that, right? They had already announced their third quarter earnings the first week of November. They raised the guidance that they offered just four weeks ago. So again, bottom line earnings per share guidance of at least $8 for 2021. Previously the guidance was somewhere in the range of $7.90 to $8. So now they're on the low end-- or rather on the lower end, at least $8 per share.

But what's interesting to me was the CFO commentary in the preview to that shareholder day today, where they noted-- you guys smell that? Maybe a little bit of M&A. Apparently, the CFO was saying that they're looking for capability-focused M&A targets that will fit with our unique collection of assets. So that could be a running theme for CVS in 2022.

With some of the shift in the branches themselves, Brian, maybe they're trying to find targets to fill in with the capital that they might be getting with some of that reshuffling. So definitely a very interesting story, a very big transformation happening not just on a management level but also strategy-wise as well.

JULIE HYMAN: Brian Sozzi loves the smell of M&A in the morning, it is true. Let's talk about the next one, Rent the Runway. Its first earnings report as a public company, a little good, little bad here. And you've got to sort of dig in. The market is definitely taking it as bad.

So the company's third quarter revenue was up by 66% to $59 million it. Is still posting losses. And its losses are steepening. So its third quarter net loss, $6.72 a share. A year earlier, that was $3.98.

Subscriber growth, also very important when you're talking Rent the Runway. Active subscribers, those who have not paused their memberships, just over 116,000. That's a 78% increase year over year. But it is 87% of active subscribers from the end of 2019, because during the pandemic, a number of customers paused or canceled their subscriptions.

So there are still some questions here about losses and about subscriber growth, given the environment, Brian Sozzi.

BRIAN SOZZI: This has been a terrible week. This has been a terrible week for these digital online retailers. You had that Stitch Fix from yesterday, really a terrible day in the session for them. And it's looking to be a tough session for Rent the Runway. And maybe that shouldn't be the case.

I have to give Jennifer Hyman, the co-founder and CEO over at Rent the Runway, very compelling, very compelling earnings call last night, really making the case that they will be an in-demand service as more people return to work last year. A very well-crafted, well thought out earnings call, probably one of the better ones I've heard in a while from a retailer.

Also noting that the omicrom variant-- and this is something if you are trading the markets here, you have to watch out for as companies come out with their guidance in the coming weeks and then earnings. Hyman noting they have not seen an impact to their business from the variant. Again of course, it's something that can change overnight, but something to monitor moving forward for many other companies.

And then all in all, unlike a Stitch Fix, you have Rent the Runway coming out and saying active customers or subscribers up 20% quarter over quarter, so just quicker growth from the likes of Stitch Fix. But again, I think you're seeing the stock under pressure here. People, investors remain concerned on the demand for this service in a hybrid work environment. But again, good earnings call.

BRIAN CHEUNG: I mean, under pressure would certainly be the case. What, 12% down so far? And well below the IPO price in the range of $19 to $20, which was just in October. But I do kind of want to underscore, yes, it hasn't been a great, let's say, month, month and a half for Rent the Runway. But a lot of IPOs this year weren't all that great, especially the tech-focused ones.

But for Rent the Runway, I would argue that you don't have to care that much through the noise of your especially first quarterly report because you've raised your money already. You got your capital raise. You did the IPO in October. I'm sure the lead-up to all of that is a lot of work, especially if you're not doing it by a SPAC. You've got to do all that hard work yourself.

Now obviously, they've collected the capital. They have plans to execute on it. What their longer-term strategy is going to require is going to take more than a few quarters. And I think that Rent the Runway takes pride in their $135 a month model that doesn't require it to get the $200 million-plus subscribers that Netflix or a Disney+ need to do well, right?

So for Rent the Runway, if you have a smaller base of loyal subscribers that are willing to pay up that kind of money-- certainly, I'm not one of those types of people. But if you can get a small amount, call it sub-1 million, then you can do very well as a company.

So again, when you're looking at the stock right now, yes, the quarterly earnings for this first report don't look all that great. But I think for a lot of tech companies just trying to ride out the volatility after going public this year, they're probably thinking, look, let's just keep our eye on the prize here, use the capital raise that we have to execute on our medium to long-term strategy, and try to filter out the noise, at least for right now.

JULIE HYMAN: You would have more turtlenecks if you did Rent the Runway, Brian Cheung, I'm just saying.

BRIAN CHEUNG: I would, I would.

JULIE HYMAN: I am a Rent the Runway customer, although I am not related to Jennifer Hyman, important distinction. All right, just want to mention one more stock very quickly before we go to break, and that is GameStop. We were talking about it at the top of the show after that company reported continuing losses and didn't take any questions on the conference call. The shares are down 4% here this morning. And as Soz pointed out earlier, it's down about 50% from their highs this year but still up more than 900% year to date.

BRIAN SOZZI: I smell trash with that quarter, Julie. I smell trash with that GameStop quarter.

JULIE HYMAN: Yeah, I think you're not the only one.