CVS Health achieved record sales in 2014 — increasing net revenues by 9.9 percent to $139.4 billion — even after a major rebrand and the removal of lucrative tobacco products from its stores’ shelves.
The pharmacy announced early last year the decision to stop selling cigarettes and other tobacco products at its more than 7,600 stores across the U.S. by October 1, 2014. CVS said it expected to lose approximately $2 billion in revenues annually from the loss of tobacco sales, but claimed it had identified incremental opportunities to offset the profitability impact.
However, the new financial numbers from CVS show that net revenues increased 12.9 percent to a record $37.1 billion in the Fourth Quarter 2014 —. Operating profit increased 4.7 percent to $2.3 billion. The company made up for its tobacco sale losses with increases in its pharmacy services business, which posted 22 percent increase in revenue to $23.9 billion for the three months through December 31. This was driven in large part by growth in its Medicaid programs.
"Our results underscore the fact that we are winning in the marketplace and, as a result, driving solid and sustainable growth,” said CVS Health President and CEO Larry Merlo. “2014 will be remembered as the year in which we rebranded our company as CVS Health and made the right decision to exit the tobacco category, better aligning our company with patients, payors and providers.”
Although the decision to eliminate tobacco products was the first of its kind by a national pharmacy chain, it was also a logical move — how could a company that claimed to promote improved health outcomes continue to sell cigarettes?
With more than 480,000 deaths annually, smoking is the leading cause of premature disease and death in the United States. While the prevalence of cigarette smoking has decreased from around 42 percent of adults in 1965 to 18 percent today, the rate of reduction in smoking prevalence has stalled in the past decade.
The implications of CVS’ discontinuation of tobacco products are already being felt: Results of a study from CVS Health, included in a Health Affairs blog late last year, showed that the enactment of policies to eliminate the sale of tobacco products at retailers with pharmacies in San Francisco and Boston was associated with up to a 13.3 percent reduction in purchases of tobacco products.