Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Walgreen Ready to Smoke CVS With Tobacco Sales

By Rich Duprey - Mar 28, 2014 at 12:29PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The pharmacy chain would rather fight than switch.

Despite a gang of U.S. senators and state attorneys general attempting to bully pharmacy chains to follow the lead of CVS Caremark ( CVS 0.98% ) in banning tobacco sales, Walgreen ( WBA 4.28% ) said it's going to ignore the pressure for the time being and continue selling cigarettes to its customers.

Eight Demoratic senators and 28 attorneys general from all across the country sent separate letters to Walgreen and Rite-Aid ( RAD 0.17% ), 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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Walgreens Boots Alliance, Inc. Stock Quote
Walgreens Boots Alliance, Inc.
WBA
$46.53 (4.28%) $1.91
CVS Health Corporation Stock Quote
CVS Health Corporation
CVS
$90.87 (0.98%) $0.88
Rite Aid Corporation Stock Quote
Rite Aid Corporation
RAD
$12.00 (0.17%) $0.02

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
640%
 
S&P 500 Returns
139%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/03/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.