CVS Grinds Out Revenue Growth In The Face Of Year-Ago COVID Comps

CVS Health

As a frontline healthcare company, it is impossible for CVS not to look back to a year ago, when the early stages of COVID lockdowns had store shelves picked bare as consumers panic-bought everything from hand sanitizer to toilet paper in an effort to prepare for the unknown.

Fast-forward to 2021, and the Rhode Island-based retailer and health benefits provider has managed to eclipse its year-ago, pandemic-fueled retail sales — albeit by just 2.3 percent — for the three months ending March 31. However, according to the company’s statement, lower front store revenues in the retail/long-term care segment — which operates close to 10,000 stores —  saw operating profits falling 27 percent to $1.5 billion.

When combined with CVS’s healthcare and pharmacy benefits units, the company said total Q1 revenues rose 3.5 percent to $69.1 billion, with adjusted earnings up roughly 7 percent to a better-than-expected $2.04 per share.

“We delivered strong first-quarter results and improved our outlook for the year,” said CVS Health President and CEO Karen Lynch. “We continue to execute on our strategy while simultaneously managing through a pandemic, helping the country on the road to recovery. Our unmatched assets and strength of our brand are driving results as we work toward improving care delivery and driving growth.”

The Integrated Experience

Despite its massive retail footprint, CVS has come a long way from the corner drug store — it has grown into a $100 billion healthcare colossus through its acquisitions of Aetna in 2017 and pharmacy benefit manager Caremark in 2007.

Today, the company continues to strive to increase collaboration and efficiencies through its three core units to maximize the lifetime value of its multi-million customer base, while also focusing on its ongoing digital transformation effort, saying it is exploring every avenue for growth and increased return.

“It is clear that consumers want convenience, transparency, choice and control over their healthcare, and that is why we are engaging consumers in new and different ways, by working to meet their health needs in the community, in the home and virtually,” Lynch told investors and analysts on the company’s earnings call.

CVS said visits to its website increased by 80 percent in Q1, at a time when its loyalty program members have risen to more than 75 million members. “We are consistently using technology to improve our customer experience and reduce our cost structure,” Lynch noted.

The increase of in-store health services, such as the company’s COVID testing and vaccination programs, has also been a key driver of foot traffic and profits. The company said it is in the process of adding more behavioral health services to its Minute Clinic portfolio, citing an increase in COVID-related ailments such as depression and drug and alcohol abuse.

The retailer’s healthcare benefits segment reported a 6.7 percent increase in revenues to $20.5 billion, accounting for almost one-third of total sales and roughly half its profits. The company has also added 214,000 new medical members year to date, reaching 23.6 million total, as Medicare and Medicaid insurance products partially offset a decline in its commercial products. Its pharmacy services segment revenue rose 3.8 percent to $36.3 billion, accounting for 52 percent of sales and 42 percent of operating income.

Raising Guidance

In raising its full-year forecast, CVS said it is counting on the economy returning to more normalized levels. It now sees adjusted earnings per share ranging from $7.56 to $7.68 per share, reflecting an increase of about 1.5 percent, which is also above the top end of its previous outlook. 

As much as CVS is looking to find new areas of growth, so too is its rival Walgreens, which announced on Tuesday (May 4) that it is launching an expanded delivery service that will bring over 24,000 products to online shoppers’ doors in under two hours with no minimum order.

CVS did not acknowledge the new Walgreens initiative nor did it mention its own delivery services, but the retailer has been offering same-day prescription delivery for over two years, and has existing delivery deals with Shipt and Instacart. 

Currently, CVS has more than 300,000 employees. Its stock has risen 30 percent in the past year, leaving it with a market value of $102 billion.