CVS Health has finished its turnaround year with strong revenue growth, but weak retail sales are still holding the business back.
The healthcare giant reported fourth-quarter revenue growth of 8.2 per cent, ahead of guidance, with gains across all major divisions. For the full year, revenue also increased solidly, reflecting improved performance across the group.
“Our fourth quarter and full-year results demonstrate the progress we are making in transforming the health care experience with our unique collection of businesses,” said David Joyner, CVS Health president and CEO.
“From lowering drug prices, to improving navigation of health care, to being the front door of care across our country, we are well-positioned to achieve our ambition to be the most trusted health care company in America.”
Operating income, however, fell 10.8 per cent in the quarter and declined 45.3 per cent for the year. Much of the drop was linked to goodwill impairments and changes in realised capital gains.
The pharmacy and wellness division was the standout performer, with revenue rising 12.4 per cent. Same-store prescription volumes increased 9.7 per cent, helped by the closure of Rite Aid stores and CVS’s acquisition of prescription files through the bankruptcy process.
“In many ways, while the shuttering of Rite Aid is unfortunate, it helps consolidate CVS’s position in the market,” Neil Saunders, MD of GlobalData, commented.
However, the benefits seen in pharmacy did not translate into front-of-store retail. Overall front-of-store sales fell 0.3 per cent, while comparable sales edged up just 0.5 per cent.
“While CVS has been the go-to destination for former Rite Aid customers in prescription and pharmacy, the same does not hold true for general retail,” Saunders said, noting that competitors such as Walmart, Dollar General and Amazon are capturing more of that spend.
He added that retail remains critical to customer perception and long-term resilience, warning it “should be something that throws a halo around the rest of the operation, not one that drags it down”.
Despite the retail softness, Saunders believes CVS is making structural progress.
“While we maintain our general view that CVS is something of an overly complex and unwieldy organisation, improved discipline across the various divisions and a tighter vision is helping to create a more coherent business,” he said.
Management appears committed to assessing each unit individually to optimise performance, with a unifying ambition to improve customer experience in the often-complicated healthcare landscape.
“Quite honestly, we do not think that CVS is quite there yet, but we see a lot of sense in the approach and believe it will resonate in the market,” Saunders said.
