CVS Health on Tuesday reported that third quarter net revenues rose 2.4%, or $1.1 billion, to about $47.3 billion, up from $46.2 billion in the year-ago quarter.
Same-store sales in the quarter rose 6.7%, according to a company press release. Pharmacy same-store sales rose 8.7%, driven by an increase in pharmacy same-store prescription volumes which was partially offset by reimbursement pressure and a negative impact of about 190 basis points from recently available generic prescription. Front store retail comps rose 0.8% in the quarter year over year, thanks to the company’s consumer healthcare and beauty care categories.
Net income in the quarter rose $105 million, or 8.2%, to $1.4 billion, the company also said. Consolidated operating profit in the quarter fell by $146 million, or 5.8%, to $2.4 billion, driven by a $64 million increase in acquisition-related costs, an increase in operating expenses due to the investment in wages and benefits, and an increase in operating expenses from growth in the business. Those costs were partially offset by improvements in gross profit dollars, according to the release.
Unlike many of its most recent quarters, CVS eked out a comp rise in its front-of-store retail operations, thanks mostly to its renewed attention to the beauty category.
But it was a meager increase and it remains to be seen whether it's an anomaly, according to analyst Neil Saunders, managing director of GlobalData Retail.
"[F]ront of store sales have fallen during this quarter for every year since 2012. Last year, the number dipped by a relatively sharp 2.8%," Saunders said in comments emailed to Retail Dive, adding that much credit for the third-quarter rise must go to the healthy economy and the confident consumer. "This represents a significant erosion of trade which not only underlines CVS's issues in retail but also makes a modest 0.8% gain rather unimpressive."
Still, while it has further to go, the retailer has improved its beauty sales, a drugstore mainstay that has ceded market share to specialty players like Sephora and Ulta, along with renewed efforts from mass merchants like Target and department stores like Macy's.
"One of the main initiatives here is the BeautyIRL concept which is being tested in around 4 stores," Saunders noted. "This is essentially an expanded beauty offering with features like a Test-and-Play Hygiene Bar, a Mini Must-Have boutique selling small product samples, and some services such as a hair and nail salon in partnership with Glamsquad. An extended assortment of products and brands are also offered. From what we have seen, this concept is a big step in the right direction and helps to elevate CVS's beauty proposition."
But there's much more to do if the retailer is to take back market share and entice shoppers into stores for its health care services and products, he also said. "Unfortunately, because of years of neglect, consumer opinions and views on CVS as a destination for beauty are both low and lackluster," he said. "In essence, the down-at-heel drugstore perception lingers strongly and CVS will need to counter this creatively with marketing, events and other customer outreach. The other slight issue is that the concept only really puts CVS on a par with what other retailers in this space have done or are doing."
Beyond its beauty assortment, though, are CVS's substandard stores, Saunders warned. "The majority of stores are still dingy and uninspiring," he said. "This means CVS underperforms on categories like general merchandise. Remedying this requires much more effort than the addition of a beauty concept to select stores."