CVS to End Tobacco Sales in October

WOONSOCKET, R.I. -- CVS Caremark has decided to stop selling tobacco products at its more than 7,600 CVS/pharmacy stores across the United States by Oct. 1.

The move could have a beneficial impact on convenience stores, which have seen struggling tobacco sales at a time when more competition -- notably drug and dollar stores -- has entered the tobacco arena.

Although cigarette margins are low for retailers, they do drive foot traffic. Therefore, we were surprised by CVS' move. We believe this will have no impact on tobacco manufacturers as smokers will still buy cigarettes and other tobacco products -- rather, they will simply go to other retailers such as c-stores, dollar stores and tobacco shops," said Bonnie Herzog, managing director of tobacco, beverage and consumer research at Wells Fargo Securities LLC.

"Therefore, this is a positive for c-stores as we believe a portion of the approximately 15 percent of total tobacco volume sold through drug stores and supermarkets will move to c-stores and other retailers, especially if more drug retailers follow suit and discontinue sales of tobacco products," she added.

Herzog noted that if more tobacco consumers are going into c-stores, non-tobacco merchandise sales in the channel will benefit.

"Ending the sale of cigarettes and tobacco products at CVS/pharmacy is the right thing for us to do for our customers and our company to help people on their path to better health," explained Larry J. Merlo, president and CEO of CVS Caremark. "Put simply, the sale of tobacco products is inconsistent with our purpose."

Merlo continued, "As the delivery of health care evolves with an emphasis on better health outcomes, reducing chronic disease and controlling costs, CVS Caremark is playing an expanded role in providing care through our pharmacists and nurse practitioners. The significant action we're taking today by removing tobacco products from our retail shelves further distinguishes us in how we are serving our patients, clients and health care providers, and better positions us for continued growth in the evolving health care marketplace."

CVS Caremark's decision comes as the retailer prepares to launch a smoking cessation program this spring. The program is expected to include information and treatment on smoking cessation at CVS/pharmacy and MinuteClinic, along with online resources. The program will be available broadly across all CVS/pharmacy and MinuteClinic locations.

According to CVS Caremark, the decision to exit the tobacco category does not affect the company's 2014 segment operating profit guidance, 2014 EPS guidance or the company's five-year financial projections provided at its Analyst Day on Dec. 18. The company estimates that it will lose approximately $2 billion in revenue on an annual basis from the tobacco shopper, equating to approximately 17 cents per share. Given the anticipated timing for implementation of this change, the impact to 2014 earnings per share is expected to be in the range of 6 cents to 9 cents per share.

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