CVS Health closed its fourth quarter with another set of positive results, benefiting from all three of its main segments performing at or above expectations. Content with the progress made in its overall transformation strategy, CVS’s total revenue grew 32% versus a year ago. Continuing a positive trend rare for the drug channel, front-store comparable sales grew 0.7%, while pharmacy same-store sales increased 4.1%, benefiting from continued adoption of patient care programs.

With its business humming along, CVS Health’s senior leadership team kept the earnings call very short, with relatively little attention paid to its retail segment. Here are a few key takeaways:

Becoming a healthcare company

Overall, retail received little mention throughout the earnings’ call. Instead, CVS’s senior leadership touted the retailer’s chops as a budding healthcare company. In the Health Care Benefits segment, CVS grew Aetna membership to 22.9 million, up nearly 4% over last year, driven by strong growth in its government services businesses. In particular, CVS’s Medicare Advantage business grew by over three times the industry average in 2019.

Chronic disease management, a key area of focus for CVS since it completed the Aetna acquisition, has several pilot programs – one of them, Transform Oncology Care, is a new program that pulls together the retailer’s capabilities and helps patients receive the most effective cancer treatments. Elsewhere, CVS mentioned the growing importance of specialty pharmacy as the category of treatment takes an even greater share of overall healthcare spending.

HealthHub dominates the retail conversation

For listeners curious about innovation in CVS’s merchandising initiatives, there was little detail given beside the typical overtures made every call about the importance of beauty and health and wellness categories. Instead, CVS’s senior leadership emphasized the centrality of the HealthHub format to their overall retail healthcare strategy. If the HealthHub can catch on with shopper, its potential to reshape the healthcare landscape is impressive - according to CEO Larry Merlo, the new format’s practitioners can treat about 80% of what a primary physician can treat. With healthcare prices climbing in the US, the HealthHub could act as a more affordable alternative to the traditional primary care model.

CVS has begun rolling out pharmacist panels to their HealthHub locations. By combining pharmacy and medical data, these panels give pharmacists a more holistic view of their patients, allowing them to improve medication adherence, optimize medication regimens, close gaps in care and connect patients to their health plan. While the HealthHubs are still quite young, early performance is positive. These specialized locations continue to outperform their control group with higher script volume and increased MinuteClinic visits, as well as driving sustained front-store performance.

Despite the strong performance, several strong headwinds exist

While impressive growth in CVS’s Medicare/Medicaid programs powered much of the retailer’s overall performance, there are several dangers to this increasingly valuable segment of the retailer’s business. With reimbursement pressures and the increasing relevance of generic drugs always threatening the retailer’s bottom-line, CVS may feel greater pressure to deliver profit in other ways and cut back on investment made in other segments.

After months of telling its suppliers and partners that it no longer views itself solely as a retailer but instead as a “healthcare company,” CVS’s Q4 results finally seemed to mark an inflection point for the retailer. Whether it’s still far too early to tell if CVS will be successful in its ambitious plan to transform healthcare, the retailer certainly is blazing a path not seen elsewhere in retail.

For more information, please contact:

Ben Antenore, Analyst

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