Sozzi's Retail Roundup: CVS Getting In Tune With Its Health Realignment
Last week, Brian Sozzi, CEO and Chief Equities Strategist at Belus Capital Advisors dropped by on Benzinga's PreMarket show to discuss retailers.
Benzinga asked Sozzi to share his retail expertise on companies he does not normally follow and for his opinion on CVS (NYSE: CVS) decision to ban the sale of tobacco products in its stores. Off the bat, Sozzi said that CVS, along with Chipotle Mexican Grill, are at the forefront of two major social issues in 2014.
— Brian Sozzi (@BrianSozzi) February 5, 2014
Sozzi said that the company's decision “makes sense” given the fact that it is trying to invest and brand itself as “health clinics.” Getting rid of tobacco products more accurately aligns with the company's focus.
CEO Merlo: The sale of tobacco products is inconsistent w/ our purpose of helping people on their path to better health. #cvsquits
— CVS Caremark FYI (@CVSCaremarkFYI) February 5, 2014
Sozzi said that dollar store companies such as Family Dollar should benefit from CVS' loss. Dollar store chains recently began selling tobacco products. Even though tobacco sales are not that high of a margin, Sozzi argued that for dollar store chain shareholders this will drive traffic and increase same-store sales. During Dollar General's third quarter conference call, the company's CEO Richard Dreiling said the company is “beginning to convert the cigarette customer into a shopper.”
When asked if other pharmacy retailers, such as Walgreen will follow suit, Sozzi said, “In retail land, when one company tends to do something, many others tend to follow suit” and that CVS' competitors are closely monitoring reaction seen on social media to study the situation. He questioned what item can possibly replace cigarette sales that drive traffic to stores. A customer buying cigarettes might also purchase a drink, candy bar or pack of gum, which have higher margins.
Latest Ratings for CVS
|Aug 2016||Deutsche Bank||Maintains||Hold|
|Jun 2016||Morgan Stanley||Downgrades||Equal-weight|
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