Walgreen Ready to Smoke CVS With Tobacco Sales

The pharmacy chain would rather fight than switch.

Mar 28, 2014 at 12:29PM

Despite a gang of U.S. senators and state attorneys general attempting to bully pharmacy chains to follow the lead of CVS Caremark (NYSE:CVS) in banning tobacco sales, Walgreen (NASDAQ:WBA) said it's going to ignore the pressure for the time being and continue selling cigarettes to its customers.

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Eight Demoratic senators and 28 attorneys general from all across the country sent separate letters to Walgreen and Rite-Aid (NYSE:RAD), calling on them to remove cigarettes and tobacco products from their shelves. CVS made a big splash last month when it announced that despite generating some $2 billion in revenues annually from them, it would stop selling tobacco products in all 7,600 stores by Oct. 1. Admittedly, it is a bit incongruous for companies committed to promoting healthy lifestyles to sell products that are detrimental to that goal. 

Yet in Walgreen's second-quarter earnings conference call, the pharmacy chain noted that the population that smokes has dropped from about 50% in the 1960s and 1970s to around 18% today, a level it's been at for some time. Of those who do smoke, around 60% want to quit and 45% have tried quitting in the past year. Walgreen seems to be saying some people are going to smoke regardless and it believes it can best serve them by providing solutions like nicotine replacement therapies and smoking cessation products, not by denying them access to tobacco.

It didn't discuss the opportunity to gain customers from CVS' move, but that $2 billion in sales will be going somewhere. Walgreen, which generated over $19 billion in total sales in the second quarter, up 5% from the year-ago period, said prescriptions remain its most important business, accounting for nearly two-thirds of total revenues. The pharmacy chain also noted it increased its market share in the space by 20 basis points to 19% in the quarter, and one has to wonder if any of that was caused by the CVS announcement and how much further it will expand when the tobacco ban is complete.

Walgreen has committed itself to its wellness program, which means there's always a chance the pharmacist will change its mind down the road, but for now, it seems willing to try to smoke the competition. Though its shares are up by more than half from recent lows, I wouldn't be surprised to see them climb higher still as customers kick the CVS habit and buy their cigarettes -- and their prescriptions -- from its rival.

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Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends CVS Caremark. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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