CVS Caremark claimed the healthcare high ground by discontinuing the sales of tobacco products but the move comes with a steep price as the company said it will lose $2 billion in revenue and experienced a 17 cents a share profits impact.
As CVS and other drug store chains have sought to play a larger role in the nation’s health care delivery system the sale of tobacco products had become increasingly inconsistent with that mission. In addition, the decision comes as tobacco usage and cigarette smoking in particular has been on a long term decline and other non-health oriented retailers such as Dollar General and Family Dollar have added tobacco to their products assortments.
"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," said president and CEO Larry J. Merlo. "Put simply, the sale of tobacco products is inconsistent with our purpose. 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."
Coinciding with this announcement, a Journal of the American Medical Association Viewpoint article published this week details the importance of this decision in light of the expanding role of the pharmacy industry in health care delivery. The article is co-authored by Steven A. Schroeder, director, Smoking Cessation Leadership Center, University of California, San Francisco, and CVS Caremark chief medical officer Troyen Brennan.
"CVS Caremark is continually looking for ways to promote health and reduce the burden of disease," said CVS Caremark chief medical officer Troyen A. Brennan, M.D., M.P.H. "Stopping the sale of cigarettes and tobacco will make a significant difference in reducing the chronic illnesses associated with tobacco use."
The program, to be launched this spring, 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 and will offer additional programs for CVS Caremark PBM plan members to help them to quit smoking.
"Every day, all across the country, customers and patients place their trust in our 26,000 pharmacists and nurse practitioners to serve their healthcare needs," said Helena Foulkes, president of CVS/pharmacy. "Removing tobacco products from our stores is an important step in helping Americans to quit smoking and get healthy."
CVS Caremark's decision to stop selling tobacco products is consistent with the positions taken by the American Medical Association, American Heart Association, American Cancer Society, American Lung Association and American Pharmacists Association, which all have publicly opposed tobacco sales in retail outlets with pharmacies.
The company stated that its 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 Dec.18th Analyst Day. The company estimates that it will lose approximately $2 billion in revenues 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. The company has identified incremental opportunities that are expected to offset the profitability impact. This decision more closely aligns the company with its patients, clients and healthcare providers to improve health outcomes while controlling costs, and positions the company for continued growth.