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More on CVS Caremark's tobacco exit play

  • CVS Caremark (CVS) says it will stop selling tobacco products by October 1, 2014.
  • The company estimates it will lose $2B in annual revenue and $0.17 in profit per year. The impact on 2014 EPS will be $0.06-$0.08.
  • The end game is that CVS could be in a much position than Walgreen (WAG) or Rite Aid (RAD) to strike deals with medical groups and insurance companies.
  • CVS -1.7% premarket
Comments (6)
  • Regarded Solutions
    , contributor
    Comments (16770) | Send Message
     
    Looks like WAG just added a significant amount of revs, profits and new customers. Even if WAG decides to do the same, it will be on equal ground and have the advantage of seeing how this odd maneuver works for its main competitor.
    5 Feb, 08:14 AM Reply Like
  • Transcripts&10-K's
    , contributor
    Comments (765) | Send Message
     
    Very odd wording in the press release - "the tobacco shopper"

     

    Does this imply they've included the sales they (expect to) lose from shoppers who bought tobacco as well as other products?

     

    They note 18% in US smoke, with 7/10 wanting to quit; turning away ~1/5th of steady business is a big deal...
    5 Feb, 08:29 AM Reply Like
  • babyboy
    , contributor
    Comments (3) | Send Message
     
    Indeed. If 18% of Americans smoke, this represents substantially more than 20% of their steady business.

     

    using the following unfounded but hopefully conservative guesses that:
    -an average smoker consumes 3 packs per week
    -most smokers (at least the 70% who want to quit) buy by the pack rather than the carton
    -anyone who buys the same thing 3x per week probably settles into a routine involving 1 or 2 purveyors

     

    so ~15% of CVS's customers are in their store 3x per week. and not just *in* the store, but actually waiting in line and buying something. if they stop selling cigarettes, but the drug store across the street doesn't, i wouldn't be surprised to see 30% of their sales going directly to them.

     

    to say nothing of the fact that smokers probably spend more on medicine than the average person in the first place.

     

    the upshot of all this is that the only sensible thing to do is to open a kiosk, and start selling that tobacco. easy street, here i come!
    5 Feb, 01:16 PM Reply Like
  • Transcripts&10-K's
    , contributor
    Comments (765) | Send Message
     
    They put the number at $2B, approximately 3% of retail pharmacy revenues; they estimate that $1.5B is directly from tobacco related products, with the remaining $500M covering the sundries.
    5 Feb, 01:38 PM Reply Like
  • hooligan01
    , contributor
    Comments (57) | Send Message
     
    Guess they will stop selling junk food next how about all the drugs they are selling that people do not need.
    5 Feb, 12:49 PM Reply Like
  • satyr
    , contributor
    Comments (792) | Send Message
     
    This does not seem like a brilliant move by CVS. The cigarette revenue they do not necessarily need. The customers who buy cigarettes is another matter. Of course, we won't know for quite a while, because they aren't pulling the tobacco until October 1. Maybe they are hoping that the competition follows suit, but I doubt that will happen. It's a slippery slope, and if you are going to claim that you are not going to sell tobacco for health reasons, then you also have to eliminate the booze, sodas, candy, and 8-packs of powdered sugar donuts. That said, CVS may have very direct reasons for doing this, given that they have been in the sights of regulators for quite some time, and are currently under sanctions surrounding Medicare D. It should not go unnoticed that Obama made direct and positive remarks about this decision immediately following the announcement, which can only mean that they were notified in advance. Or was it the other way around?
    6 Feb, 02:07 AM Reply Like
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