CVS said Thursday fourth quarter net revenues rose 5.3% or $2.4 billion year over year to $48.4 billion, driven primarily by growth in its pharmacy network, volume in its specialty pharmacies volume and brand inflation, according to a release. Front same-store sales were down 0.7% in Q4 as traffic declined and the company pulled back on promotions. For fiscal 2017, the drug store retailer’s revenue rose 4.1% against the year-ago period, to $184.8 billion.
Net income for CVS was about $3.3 million, or $3.22 per share, up from $1.7 million, or $1.59 per share, in the year-ago period. CVS earnings and sales beat the FactSet consensus cited by MarketWatch of $1.89 per share on revenue of $47.54 billion. The company’s fourth quarter operating profit, rose 3.6% or $108 million to $3.1 billion, due in part to gross profit improvement in its Pharmacy Services Segment, which saw a favorable shift in the timing of Medicare Part D profits between the third and fourth quarters, as well as to growth in network and specialty volume and favorable purchasing economics.
Also on Thursday, CVS said it was raising starting wages to $11 thanks to the new tax law. The company added that it was going to hold its employee health insurance premiums steady (and absorb a 5% increase in health costs for its employees) and would now offer employees with new children four weeks of paid parental leave.
Tax cuts and CVS Health’s ongoing push to become a major healthcare player seem to have helped offset its flatlining retail operations.
For the upcoming fiscal year, CVS said it will allocate at least $275 million of its benefit from the new tax law to strategic investments in growth of its business, reducing adjusted operating profit growth by 250 basis points. Roughly $425 million will go to improving salaries and benefits, and other funds will go to paying down debt from its $69 billion acquisition of health insurer Aetna (yet to be approved by federal regulators), and the company will further invest in data analytics to improve health outcomes and lower costs for customers.
The company can’t afford to continue to neglect its retail stores, however, according to GlobalData Retail managing director Neil Saunders, who praised the company’s pivot to healthcare. "The healthcare market is overly complicated and can be hideously expensive. Should it get Aetna under its umbrella, CVS has an opportunity to help simplify processes and improve outcomes for patients," he told Retail Dive in an email. "The idea of developing the healthcare equivalent of the Apple Genius Bar in shops is an interesting idea and should help to drive customer traffic to CVS's extensive network of stores."
The company is simply not extending its forward thinking and innovation in health to its retail operations, Saunders said. "It is an extraordinarily unimaginative and backward-looking retailer," he warned, citing its continuing slide in front-of-store sales plus GlobalData Retail's own research showing that CVS ranks well below its peers on attributes like store design, product displays, retail customer service, ease of shop, inspiration and brand selection. "In short, it is hopeless at retailing. The sales it does make are only because of its scale and convenience; but if it attains this with little effort, a bit more care, and attention could transform its prospects."
CVS isn’t even managing to capitalize on the robust beauty market, and that cost it sales over the holidays, according to Saunders.
In fact, better performing stores would enhance CVS Health’s healthcare proposition, too, he said. “If CVS truly wants to become to health solutions what Apple Stores have become to technology solutions, it must understand that shop aesthetics, customer service, the simplicity of the proposition and many other retail skills matter,” he said.