Now, this is certainly applaud-worth from a public well-being standpoint--especially as this marks the first national pharmacy chain to take a step in support of the health and well-being of its patients and customers.
However, this is--contrary to what many think--a smart shareholder move. Skeptical? Here's why...
First, I trust that CVS management has done the math. While they are likely focused on making a positive statement, when making a big decision to, you have to consider they have thought about the implications to the bottom line. And, the benefit of the cigarette sales for their core demographic likely just isn't enough. After all, about 70% of cigarette sales are already controlled by the convenience store rather than the pharmacy market. And we know it's a low margin business, as dollar stores like Dollar General (DG), which have seen increased traffic from selling tobacco, have also seen margin deterioration.
CVS specifically stated in their release that 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 in its December analyst day. The EPS loss can be made up by incremental opportunities that are expected to offset the profitability impact.
Second, companies levered to healthier living tend to do well from a long-term shareholder return perspective. We have talked about this with the anti-obesity stocks longer-term (despite some volatility), like Whole Foods (WFM). Look at companies that have embraced "better world" initiatives including recycling at Starbucks (SBUX) and organic food at Chipotle (CMG). People like shopping at and consuming from companies that are working to make the world a better place. Not to mention the political and social gains to be had with a widespread media focus.