CVS Health (NYSE:CVS) has a history of making changes before it has been forced. The company stopped selling cigarettes back in 2014 because the product line was not in line with its overall brand positioning.
That was part of a greater move to reposition the company as a health brand. CVS isn't just a convenience store that also has a pharmacy. The company wants consumers to see it as a destination for their healthcare needs. That's a long-term play that will require years of transformation, but it's a model that appears to be working.
CVS has slowly been changing its core business. One major piece of that, the purchase of Aetna, puts it in another space altogether. But ultimately the company will find ways to continue to move toward being a key part of its customers' healthcare plans.
How is CVS doing?
It's fair to say that CVS is in the early stages of its transformation. The company has added Minute Clinics to thousands of locations and changed its approach to some products. It has also embraced different standards on beauty products (like no longer allowing Photoshopped models in ads) and has rolled out HealthHubs in a few locations. Ultimately, the brand is being positioned as a partner in healthcare for its customers.
In theory, five years from now, shoppers will visit CVS to get answers for more of their wellness needs. That may mean getting advice on nutrition, learning how various medicines interact, getting a flu shot, or seeing a doctor. Some of these services are available now, but going forward the company plans for its stores to continue to evolve as service centers, offering much more than retail.
These changes appear to be going well. CEO Larry Merlo laid out some of the numbers during the chain's third-quarter earnings call:
Based on strong year-to-date performance, we are raising and narrowing our full-year 2019 Adjusted EPS guidance range to $6.97 to $7.05. As we approach the first anniversary of the Aetna acquisition, we are increasingly confident in the strength of our broad and differentiated assets as a combined company and our ability to deliver compelling value to our customers and the communities we serve. Looking ahead, we remain focused on successful execution of our strategic priorities and integration plans to unleash the full potential of our consumer-centric healthcare model and create value for all stakeholders.
That's a lot of words to say that the company's strategy appears to be working. The newly combined company had $10.2 billion in cash flow in Q3 and its sustained profitability gives it the money needed to fuel its transformation.
More than retail
CVS has embraced the idea that it's more than a retailer. It's using its stores -- at least its newest ones -- as a sort of community center for its consumers' healthcare needs. Its HealthHub stores offer concierge-like services designed to help customers get answers. That's very important as healthcare has been a challenging thing for many Americans, and a little hand-holding may go a long way.
While the company's focus on service will take years to spread throughout the chain, it's an idea that will drive the company going forward. CVS is changing what it is -- and that's very smart.
In five years the company will have a nationwide network of stores that offer much more than retail. The chain's brick-and-mortar base will be an important wellness destination for consumers, helping to democratize healthcare and bringing needed services to more people.