Today is a heartwarming day on Wall Street. This morning, CVS announced that its stores have officially stopped carrying tobacco products. The company also announced a name change from CVS/Caremark Corp. to CVS Health. The company announced it would cease sales of Tobacco products back in February, but today’s announcement is ahead of the October 1st plan for products to be out of stores.
CVS made the decision to stop selling tobacco products because it felt it was hypocritical to operate a health organization that also sold a leading cause of health issues and death. Such a move has been pushed for years from groups like the American Medical Association.
The decision to remove tobacco from stores is not without consequence for CVS. The loss of tobacco sales, plus decreased sales from related products like gum, will cost CVS roughly $2 billion in annual revenue (about 3% of total sales). The company estimated that the decision would cause a loss of 17 cents in earnings per share of stock annually, with a loss of about 6 to 9 cents this year. The effects of lost tobacco sales will likely last through the next year, but after that the company hopes to make up for the losses with new health programs.
You might think I’d advocate an automatic short or sale of shares from that news. But I won’t for two reasons. First, I don’t want to take advantage of a company that’s doing the right thing. What CVS is doing is a great move to try and stop one of America’s biggest health issues and I applaud that.
Second, the decision to end tobacco sales may actually have a positive impact for CVS in the long run. CVS is attempting to shift to more of a healthcare organization (hence the name change), and eliminating tobacco sales goes along with this expansion plan.
From a short-term revenue perspective, CVS plans to start selling more smoking cessation help, which it can sell to insurance companies and corporations to make up for some of the lost tobacco sales. On top of this, the move to stop selling tobacco allows CVS to be seen as the preferred health care provider among pharmacies like Rite Aid and Walgreens (which continue to sell tobacco).
As a result of this “health halo,” CVS plans to add another 700 minute clinics, taking their total clinics up to 1500 by 2017. This move also gives CVS more opportunities to partner with traditional healthcare providers like hospitals, who will be more likely to see CVS as a health care company. Plus, under the Affordable Care Act, if CVS partners with these providers it can actually get a cut of any money it helps insurance companies save.
I love this story about CVS. It proves that corporations can do well financially while also doing good for society.