Props to CVS; will end tobacco sales

[weekender 0]

SkyDekker

************im a cynic and see no reason to applaud them. in the past cigarettes had enough margin that large corporations like CVS, 7-11 and WAWA(shout out to the mid-atlantic) could price them below smaller stores and bodegas. This would get people in the stores to buy other items and refill their prescription. the decline of cigarette smoking in the US and huge increase in taxes has destroyed the margin. so they moved into other things like energy drinks and more groceries. i hear the sushi at the Duane Read on Wall Street is pretty good.
if they did this when it hurt the bottom line i would applaud. now its a gimmick because they can no longer benefit from the sale of cigarettes. this decision was about bottom line and has nothing to due with ethics.

.

I heard this morning that they do about 120 billion a year with 2 billion coming from tobacco.

Yeah so I looked it up....those are sales numbers, not profit numbers.

They say nothing about the actual margin on cigarettes.

Being an x-smoker, I can tell you stores like CVS had rediculous prices for smokes, sometime 3 bucks a pack more than a gas station. I bet they made 20-40%

Right...but the 120 billion and 2 billion mentioned above are still sales numbers and give absolutely no indication on the margin on cigarettes during that sales period.

You couldn't even calculate it from those numbers....it doesn't even say anything about profits.

it is easily calculable. below are the revenue and earnings cuts or topline and bottomline. or sales and profits, to you use your language. no matter what you call it, the math is there

WSJ-The drugstore chain estimates it will lose $2 billion in annual revenue from tobacco and other sundries as a result, which amounts to about six to nine cents a share this year and about 17 cents annually from next year on.

"The point is, I'm weird, but I never felt weird."
John Frusciante

[normiss 622]

Nicely put!

[SkyDekker 1,122]

weekender

*********im a cynic and see no reason to applaud them. in the past cigarettes had enough margin that large corporations like CVS, 7-11 and WAWA(shout out to the mid-atlantic) could price them below smaller stores and bodegas. This would get people in the stores to buy other items and refill their prescription. the decline of cigarette smoking in the US and huge increase in taxes has destroyed the margin. so they moved into other things like energy drinks and more groceries. i hear the sushi at the Duane Read on Wall Street is pretty good.

if they did this when it hurt the bottom line i would applaud. now its a gimmick because they can no longer benefit from the sale of cigarettes. this decision was about bottom line and has nothing to due with ethics.

.

I heard this morning that they do about 120 billion a year with 2 billion coming from tobacco.

Yeah so I looked it up....those are sales numbers, not profit numbers.

They say nothing about the actual margin on cigarettes.

yes those are the topline numbers, however, i already showed the bottom line numbers too. the cents per share. it was not a rounding error. it was a real number.

Do you have any backup for this earnings per share number for tobacco products?

Currently profits are running at 3.1% of revenues on the aggregate.

The added expense of handling, storage, age restriction and high theft rate make tobacco products a high cost item. I doubt they are going to give up much, if any profitability....and certainly much less than 3.1% of $2 billion.

[SkyDekker 1,122]

weekender

***************im a cynic and see no reason to applaud them. in the past cigarettes had enough margin that large corporations like CVS, 7-11 and WAWA(shout out to the mid-atlantic) could price them below smaller stores and bodegas. This would get people in the stores to buy other items and refill their prescription. the decline of cigarette smoking in the US and huge increase in taxes has destroyed the margin. so they moved into other things like energy drinks and more groceries. i hear the sushi at the Duane Read on Wall Street is pretty good.
if they did this when it hurt the bottom line i would applaud. now its a gimmick because they can no longer benefit from the sale of cigarettes. this decision was about bottom line and has nothing to due with ethics.

.

I heard this morning that they do about 120 billion a year with 2 billion coming from tobacco.

Yeah so I looked it up....those are sales numbers, not profit numbers.

They say nothing about the actual margin on cigarettes.

Being an x-smoker, I can tell you stores like CVS had rediculous prices for smokes, sometime 3 bucks a pack more than a gas station. I bet they made 20-40%

Right...but the 120 billion and 2 billion mentioned above are still sales numbers and give absolutely no indication on the margin on cigarettes during that sales period.

You couldn't even calculate it from those numbers....it doesn't even say anything about profits.

it is easily calculable. below are the revenue and earnings cuts or topline and bottomline. or sales and profits, to you use your language. no matter what you call it, the math is there

WSJ-The drugstore chain estimates it will lose $2 billion in annual revenue from tobacco and other sundries as a result, which amounts to about six to nine cents a share this year and about 17 cents annually from next year on.

Without the caculation shows, those numbers don't mean anything....

Did they use the current 3.1% earnings to revenue ratio to calculate that, or did they have the actual margin for tobacco sales?

current earning per share are $3.03. $0.17 would be 5.6% of that. And this due to a 1.6% drop in revenue....

I am calling bullshit.

[weekender 0]

im sorry i do not understand your question. you are not using terms i understand, my apologies. i gave you the cut expected to revenues and earnings as quoted in the WSJ. the topline and the bottom line for the stock. what happens in the middle, between revenue and earnings, was not relevant to my point.

to be more clear. my entire point was i originally thought it would not have an impact and it does. as quoted, it has an impact on both the top and bottom line in a material way(revenue and earnings). The stock was off 1% today on 2x the avg daily volume for the last 21 days. thats not a rounding error. hope that helps make my point.

"The point is, I'm weird, but I never felt weird."
John Frusciante

[SkyDekker 1,122]

weekender

im sorry i do not understand your question. you are not using terms i understand, my apologies. i gave you the cut expected to revenues and earnings as quoted in the WSJ. the topline and the bottom line for the stock. what happens in the middle, between revenue and earnings, was not relevant to my point.

to be more clear. my entire point was i originally thought it would not have an impact and it does. as quoted, it has an impact on both the top and bottom line in a material way(revenue and earnings). The stock was off 1% today on 2x the avg daily volume for the last 21 days. thats not a rounding error. hope that helps make my point.

This all started with the question on margins on tobacco products. You originally claimed they were very low. You then claimed that you were wrong because CVS had $120 billion in revenues with $2 billion of those from tobacco.

Those numbers say absolutely nothing about the margin on tobacco products.

You then throw in the $0.17 per share as reported by the WSJ. However, without knowing how that was calculated, it still says nothing about the margin on cigarettes.

For that number to be valid a 1.6% reduction in revenue would lead to 5.6% reduction in earnings per share.

I still call bullshit

(that stock being off 1% as an indicator would be based on the premise that the markets react logically. They don't, if they did, we would all be rich)

[kelpdiver 2]

lawrocket

I agree - they've got alcohol and junk food up the wazoo. Those help the bottom line (imagine selling insulin and hawking twinkies at the same time). $2 billion in sales is no joke. But if it doesn't meet the profit margin of an 18 pack of Coors light, then it makes sense to toss them.

given the weight and size of that 18 pack, never mind the cheapness of that piss, I can't see it beating smokes.

Personally, I have a hard time applauding pressuring a business to stop carrying a legal product. (SF may have already forced them to do so by legislation) If we don't think people have the right to decide to smoke, let's just ban it already and stop fucking with their ability to obtain it. Not sure we want to make up for all the tax revenues that smokers have been giving us, but that's the non hypocritical route to go.

Seems also uncool to take away a cheap source, forcing poor people to pay more at a gas station, but someone else already commented that it is in fact the other way around.

[kelpdiver 2]

SkyDekker

For that number to be valid a 1.6% reduction in revenue would lead to 5.6% reduction in earnings per share.

I still call bullshit

Because it feels wrong? Or for a real reason?

It wouldn't be the first time that a company has provided misleading guidance, but what's the incentive for CVS to do so here? I can't disregard the WSJ based on your hunch?

Cigarettes are behind the counter, so shrinkage rates should be low. It's price is fairly high per volume compared to most items in a drug store. And we have someone here saying they typically price dollar or two higher than others, so margin would be fantastic when you consider the purchase volume (and therefore cost from distributor). If it wasn't a profitable item, they would have succumbed to the pressure long ago.

I do suspect that the margins on the cessation products are even better.

[Andy9o8 0]

Quote

Personally, I have a hard time applauding pressuring a business to stop carrying a legal product.

Was there such a pressure campaign re: CVS & tobacco? I wasn't aware one way or the other, and my Googlish seems inconclusive.

Nonetheless, I will say that when a merchant aggressively markets itself as one thing - in CVS's case, as a "health and wellness destination" - I, personally, resent it when they display such blatant hypocrisy as to sell tobacco in their stores. And I will express that resentment by voting accordingly with my feet and my wallet. I suppose that is a kind of pressure: the pressure of the marketplace. So as far as I'm concerned, pharmacies that sell ciggies are making their own beds.

[weekender 0]

my margin comment was just my opinion that i admitted was based on nothing. i retracted it when the company released the charge to top and bottom line because it showed a material number.

i dont get why u are asking me for an earnings model. my point is simple. the company has stated that it will lower their guidance. who cares what i said about margins when the actual numbers are public.

sorry u feel my comments are bullshit. i feel im being clear


edited a typo

"The point is, I'm weird, but I never felt weird."
John Frusciante

[kelpdiver 2]

Andy9o8

Quote

Personally, I have a hard time applauding pressuring a business to stop carrying a legal product.

Was there such a pressure campaign re: CVS & tobacco? I wasn't aware one way or the other, and my Googlish seems inconclusive.

confirming my memory, since it doesn't matter to me as a non smoker, SF bans the sale of tobacco products at drugstores, and later supermarkets. That goes past pressure to outright mandates. And if you live in my parts, it's a long damn walk to the nearest gas station, since Lucky's was prohibited from selling.

http://en.wikipedia.org/wiki/Tobacco-Free_Pharmacies

Quote

Nonetheless, I will say that when a merchant aggressively markets itself as one thing - in CVS's case, as a "health and wellness destination" - I, personally, resent it when they display such blatant hypocrisy as to sell tobacco in their stores. And I will express that resentment by voting accordingly with my feet and my wallet. I suppose that is a kind of pressure: the pressure of the marketplace. So as far as I'm concerned, pharmacies that sell ciggies are making their own beds.

Drug stores are also convenience stores. There's nothing healthy about a lot of things they sell. They sell junk food and weight loss products. And they sell a lot of products to help people who wish to stop smoking.

If you're really going to vote with your feet against any company that engages in typically marketing products, you'll be shopping at the flea market. Otherwise, my suspicion is that you, like most, disdain smoking enough that anything goes.

[Andy9o8 0]

Third time I'll say this: one step at a time. Ciggies is a first step, it's a good thing, and it really has little or no down side.

[kelpdiver 2]

Andy9o8

Third time I'll say this: one step at a time. Ciggies is a first step, it's a good thing, and it really has little or no down side.

no downside if you're not a smoker.

[Andy9o8 0]

kelpdiver

***Third time I'll say this: one step at a time. Ciggies is a first step, it's a good thing, and it really has little or no down side.

no downside if you're not a smoker.

The peasants have no cigarettes? Let them smoke cigars.

[lawrocket 3]

So, if the ciggies are just the first step, what is the ultimate result? What's next? What sort of timeframe?

My wife is hotter than your wife.

[Andy9o8 0]

lawrocket

So, if the ciggies are just the first step, what is the ultimate result?

I guess in the end they sell nothing but aspirin. Sort of a pharmaceutical singularity.

[JerryBaumchen 1,048]

Hi rocket,

Quote

imagine selling insulin and hawking twinkies at the same time

Different products for different customers.

Surely you do not think they should be banned from selling both insulin & Twinkies; or do you?

IMO it is no different than a store that sells birth control pills/devices and fertility products. Again, different products for different customers.

Quote

I just think it's fantastic to be able to drop a product and get applauded.

I think that it is fantastic that some of us do applaud them.

BTW, I thought you were some type of free marketer, i.e., let the markets do as they wish.

JerryBaumchen

[normiss 622]

Let's get the oxy family next please.

[SkyDekker 1,122]

Quote

my margin comment was just my opinion that i admitted was based on nothing. i retracted it when the company released the charge to top and bottom line because it showed a material number.

The company didn't release a number on bottom line impact. Actually the company said that there would be little to no impact to the botom line.

The WSJ came up with this number to the bottom line. The only numbers the company came up with are the revenue (sales) numbers.

The actual margin numbers are not public. Aggragate ratio between earnings and revenue is, which in the case for CVS is 3.1%.

Tobacco margins have been steadily increasing for tobacco companies, specially in markets with high duties. However, on the retail level margins on tobacco products have been steadily falling. Target decided 2 decades ago they couldn't make enough money on it and dropped the product.

Anyways, well come back to this next year, when CVS' earnings ratio is unchanged, or has slightly improved and their profitability has gone up. Very good time to buy their stock.

[SkyDekker 1,122]

Quote

Because it feels wrong? Or for a real reason?

No because it would mean that either there is a monster markup on tobacco, the company is extremely lowballing their tobacco revenue number, or tobacco is an intense traffic driver for them.

Again, CVS didn't give an earnings indication other than to say they did not foresee an impact on their profits.

WSJ provided the earnings per share number....which I said that without calculations is somewhat suspect.

Quote

If it wasn't a profitable item, they would have succumbed to the pressure long ago.

I never said it wasn't profitably. I did say it is in no way as profitable as their medication/pharmacy business.

(Never mind the concept of loss leaders, but that doesn't apply here.)

[rehmwa 2]

I think it's great. As a business decision, and pre-emptive of any government requirement.

They recognize a customer base that will appreciate this and are making a market move to see if it pays off. AND, they are doing it as a business, and voluntarily. NO GOVERNMENT MANDATE.

If restaurants would have done this - we would have a mix of no smoking restaurants and smoking restaurants, and people could choose where they dine and enjoy a smoke free atmosphere, or one where they could smoke without worrying about the non-smokers. Instead, so many cities and states have made laws that forced ALL restaurants to go no smoking. Enough smart businessmen would have made their restaurants non-smoking in the first place, then the laws wouldn't have materialized and they would have had an advantage which is now normalized and gone.

On the otherhand - I think it's silly. Selling or not selling a product that isn't used immediately doesn't really affect me while in the store. Maybe I don't have to stand next to the addicted smokers that stinks so bad even from 10 feet away. Maybe they aren't smoking RIGHT next to the front door of the place while I walk in and out.

...
Driving is a one dimensional activity - a monkey can do it - being proud of your driving abilities is like being proud of being able to put on pants

[brenthutch 383]

Andy9o8

Looks like we should give credit where credit is due when a large, publicly-traded for-profit corporation puts ethical social responsibility on the front burner.

It's always bugged me that pharmacy chains that hold themselves out as "wellness centers" - replete with mini-clinics, etc. - stock dozens of brands of tobacco poison behind the cashier's counter. This is overdue, but I'll take it. Are their competitors listening?

http://www.latimes.com/nation/nationnow/la-na-nn-cvs-caremark-cigarettes-tobacco-20140205,0,6663810.story#axzz2sTSsLwEP

Quote

WASHINGTON — CVS Caremark, the nation’s second-largest drugstore chain, plans to stop selling cigarettes and other tobacco products at its more than 7,600 retail stores by Oct. 1, a landmark decision that would make it the first national pharmacy company to cease tobacco sales.

To make room for weed.

[davjohns 1]

Mixed emotions.

I applaud them for doing what they think is right for their business.

I don't have a problem with people smoking so long as I don't have to pay for the consequences.

Not sure how this meshes with the legalization of marijuana. Which way are we going to go with this? Does CVS still sell alcohol? Seems a little bi-polar to me.

I know it just wouldnt be right to kill all the stupid people that we meet..

But do you think it would be appropriate to just remove all of the warning labels and let nature take its course.

[weekender 0]

CVS announced the topline number. using current earnings models, the bottom line number is what WSJ is quoting. All they are doing is taking the current consensus numbers and using basic math. this is a standard process in financial reporting as far as i know. It also seems very simple and reasonable based on simple accounting. topline changes, run it through the model and adjust the bottom line accordingly. I do not understand why you feel that is bullshit.

i dont know what aggregate ratio number is, so cannot comment. i have not heard that term used in financial modeling before.

there seems to be a miss communication between us. i accept that my posts seemed to be backing my margin comment. it was not my intent. i was always talking about the bottom line impact.

to be very clear again. my original comment on margins was an off the cuff cynical rant based on nothing but my opinion. i was attempting to be humorous, mostly. CVS disclosed hard numbers that i feel have a material, albeit not drastic, impact on earnings. so i felt the right thing to due was admit my margin comment is probably wrong based on the hard numbers.

"The point is, I'm weird, but I never felt weird."
John Frusciante

[SkyDekker 1,122]

Quote

CVS announced the topline number. using current earnings models, the bottom line number is what WSJ is quoting. All they are doing is taking the current consensus numbers and using basic math. this is a standard process in financial reporting as far as i know. It also seems very simple and reasonable based on simple accounting. topline changes, run it through the model and adjust the bottom line accordingly. I do not understand why you feel that is bullshit.

Wow, you work in the financial field? OK, let's see if I can simplify this:

Company A sells two products:

Widget A sells for $100 and of that $50 is profit.

They sell 100 of these, leading to $10,000 in revenue and $5,000 in profit

Widget B sells for $10 and $1 is profit.

They also sell $100 of these for $1,000 in revenue and $100 in profit.

In total Company A has sales of $11,000 and profits of $5,100, which are the numbers they report. This gives an earnings ratio of 46.4%.

Company A now announces that they will stop selling widget B, which they say accounts for $1,000 of revenue out of their total $11,000 of revenue.

The WSJ now comes out and says this will affect their profits by $464 based on their current earnings ratio.

Maybe now you understand how in retail different margins on different product lines have a drastically different impact on earnings and that using the overall earnings ratio (other word for overall being aggregate) is misleading. This is what I believe to be the case with the earnings impact reported by WSJ on the revenue numbers being provided by CVS.