CVS Health improving after quitting smoking

Discontinuing tobacco sales a year ago may have been the right thing to do for CVS Health, but the company’s fourth quarter results offer other retailers contemplating a similar move a glimpse of the short term impact on sales.

Non-pharmacy front of store same store sales at CVS Health locations declined 7.2% during the fourth quarter but would have registered a slight increase were it not for an 800 basis point negative impact associated with lost sale of tobacco and related products.

The negative impact of lost tobacco sale in the front of the store was offset by same store growth in the pharmacy. CVS’ prescription department comps increased 5.5% in the quarter despite the topline headwind of filling more prescriptions with lower cost generics which accounted for 82.4% of all prescriptions filled.

Looking at the full year, the decision to discontinue tobacco sales had less of an impact. Front end same store sales declined 4% with lost tobacco and related product category sales estimated to have a 350 basis point impact. The decline was offset by a 4.8% same store pharmacy increase for a blended gain of 2.1%.

Revenues in the retail pharmacy segment increased 2.9% to $17.7 billion for the fourth quarter ended Dec. 31. Same-store sales increased 1.6% and pharmacy same-store sales rose 5.5%. Front-end same-store sales — which would have been 800 basis points higher if tobacco and the associated baskets were excluded — decreased 7.2%.

For the year, total revenue in the retail pharmacy segment increased 3.3% to $67.8 billion. Same-store sales increased 2.1% and pharmacy same-store sales increased 4.8%. Front-end same-store sales were down 4% and would have been about 350 basis points higher if tobacco and the associated basket sales were excluded.

For the year, total revenue in the pharmacy services segment increased 16.1% to $88.4 billion. CVS Health’s net income for the quarter increased 4.5% to $1.3 billion. Adjusted earnings per share totaled $1.21. For the year, net income increased 1.2% to $4.6 billion. Adjusted earnings per share totaled $4.22. Net revenues for the quarter increased 12.9% to a record $37.1 billion. For the year, total revenue increased 9.9% to $139.4 billion.