Now that CVS Health has stopped selling cigarettes and last week even shipped the tobacco products back to manufacturers, investors are wondering what rival Walgreen is going to do to compete.
But don't look for CVS' chief rival to stop selling smokes anytime soon, given the mounting distractions that include pressure from large holders of Walgreen stock.
It's unclear whether Walgreen's annual sales of tobacco products would rival the estimated $2 billion in revenue CVS is losing. But these days, investors and company observers don't seem to have to worry that Walgreen will make a similar move, given other issues affecting sales that are a distraction from any potential anti-tobacco strategy. Investors also don't seem to be pressuring Walgreen to follow suit.
Here are five reasons Walgreen can't yet afford to stop selling tobacco:
- Walgreen added activist investor Barry Rosenstein, the founder of hedge fund Jana Partners, to its board. Jana is among investors pushing Walgreen to slash costs as the company moves to compete in the global marketplace, following the completion of its acquisition of European drugstore chain and retailer Alliance Boots.
- Walgreen decided against an "inversion" that would have relocated its headquarters overseas and therefore will keep its headquarters in the United States. An inversion would have reduced Walgreen's corporate taxes by several billion dollars. Walgreen's tax rate of 37.5% last year was almost twice what Alliance Boots paid last year.
- Walgreen is still regaining credibility among some investors following last month's departure of Wade Miquelon as chief financial officer, following reports he made a $1 billion forecasting error.
- Walgreen store traffic hasn't been impressive of late. In August, for example, the company said that "customer traffic in comparable stores decreased 1.7%."
- Global cost-cutting is in the works and likely to continue aggressively now that Walgreen has completed its acquisition of Alliance Boots. Depending on how deeply executives reduce expenses, it could allow the company to stop selling tobacco, but recent statements don't indicate that tobacco sales are a top priority for executives at either Walgreen or Alliance Boots.
These are just among the major distractions Walgreen faces, and they point to why the company can't now afford a major loss of revenue to eliminate tobacco sales. That will offer investors at least some constant as the pharmacy chain becomes a global player in the prescription business, following the completion of its Alliance Boots transaction.
Bruce Japsen has no position in any stocks mentioned. The Motley Fool recommends CVS Health. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.