BUSINESS
11/04/2014 01:55 pm ET Updated Nov 05, 2014

CVS's Cigarette Ban Appears To Have Boosted Sales

CVS's move to ban cigarette sales earlier this year seems to be paying off.

Revenue jumped 9.7 percent in CVS' latest quarter from the same period a year ago, the company, which has rebranded itself as CVS Health, reported on Tuesday. That was due in part to a nearly 16-percent gain in revenue for CVS's pharmacy services, which rose to $22.5 billion in the quarter from $19.4 billion a year earlier.

The gain in pharmacy-services revenue helped offset a 4.5-percent year-over-year drop in sales in what is known as the "front of the store" -- where things like magazines, candy, greeting cards and toothpaste are sold -- in stores open a year or more. And that drop was due to the end of cigarette sales, CVS said.

This all fits into CVS’s grand strategy to rebrand itself as a more healthful company, said Vishnu Lekraj, an analyst who covers CVS for the investment research firm Morningstar.

CVS's pharmacy services trade, where the 16-percent increase in revenue occurred, is where the company earns big bucks by contracting with large employers and insurance companies to administer prescription-drug coverage. And it can better attract corporate partners with a healthier brand, Lekraj said.

"They can’t market themselves as a health-care servicer when they’re selling one of the most unhealthy products around,” he said.

Front-of-store sales at CVS will keep falling in the near term, but that doesn't really matter, Lekraj said. The money that CVS can earn by grabbing a larger portion of the country's expanding health-care market will likely outweigh the annual $2 billion it loses through cigarette sales, which only made up a small percentage of its revenue in the first place.

Health-care spending in the U.S. is projected to grow by 5.6 percent this year and by another 6 percent a year from 2015-2023, according to predictions by federal auditors. There are millions of people newly insured by the Affordable Care Act. And CVS is also turning itself into a low-budget doctor's office: The company has more than 900 "Minute Clinics" nationwide that offer quick service for things like flu shots or blood-pressure tests, luring in customers who may not want to wait (or travel) to see a doctor.

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