Shoppers Drug Mart Corporation reports second quarter results
Jul 18, 2013
Sales gains and prescription count growth highlight solid operating performance
TORONTO, July 18, 2013 /CNW/ - Shoppers Drug Mart Corporation (TSX: SC) today announced its financial results for the second quarter ended June 15, 2013.
Second Quarter Year-Over-Year Highlights
- Sales increase of 3.3% to $2.538 billion
- Same-store increase of 2.0%
- Pharmacy sales increase of 3.1% to $1.208 billion
- Same-store increase of 1.3%
- Retail prescription count increase of 7.0%
- Same-store increase of 5.1%
- Front store sales increase of 3.6% to $1.331 billion
- Same-store increase of 2.6%
- Net earnings per share of $0.73, an increase of 5.8%
- An increase of 2.8% compared to prior year adjusted net earnings of $0.71
Repurchased 2,040,000 common shares at an aggregate cost of $93 million
- Sales increase of 3.6% to $5.024 billion
- Same-store increase of 2.2%
- Pharmacy sales increase of 3.2% to $2.415 billion
- Same-store increase of 1.4%
- Retail prescription count increase of 7.1%
- Same-store increase of 5.3%
- Front store sales increase of 3.9% to $2.609 billion
- Same-store increase of 2.9%
- Net earnings per share of $1.31, an increase of 4.8%
- An increase of 3.1% compared to prior year adjusted net earnings of $1.27
- Repurchased 4,049,400 common shares at an aggregate cost of $178 million
Second Quarter Results (12 Weeks)
Second quarter sales were $2.538 billion, an increase of 3.3% over the same period last year, driven by strong results in the front of the store, where the Company experienced sales gains in all regions of the country, and continued strength in prescription count growth. On a same-store basis, sales increased 2.0% during the quarter.
Pharmacy sales were $1.208 billion in the second quarter, an increase of 3.1% compared to the same period last year, as strong growth in the number of prescriptions filled at retail, combined with sales gains in the Company's MediSystem Technologies business, were partially offset by a further reduction in average prescription value. On a same-store basis, pharmacy sales increased 1.3% during the quarter. During the second quarter of 2013, the number of prescriptions dispensed at retail increased 7.0% compared to the same period last year and was up 5.1% on a same-store basis. Consistent with recent quarterly trends, pharmacy volume growth remains particularly strong in Ontario and Alberta. Year-over-year, average prescription value at retail declined a further 4.2% during the second quarter of 2013, largely the result of further reductions in generic prescription reimbursement rates due to ongoing drug system reform initiatives in most provincial jurisdictions, along with increasing generic prescription utilization rates. Generic molecules represented 61.3% of prescriptions dispensed in the second quarter of 2013 compared to 58.6% in the same period last year. In the second quarter of 2013, pharmacy sales accounted for 47.6% of the Company's sales mix compared to 47.7% in the same quarter of last year.
Front store sales were $1.331 billion in the second quarter, an increase of 3.6% compared to the same period last year, with the Company experiencing sales gains in all categories, led by cosmetics, over-the-counter medications and food and confection. The Company's ability to leverage incremental pharmacy traffic, combined with effective marketing campaigns and impactful promotions, drove an increase in transaction counts and growth in average basket size in the front of the store. As well, the Company's store network development program, which resulted in a 2.3% increase in retail selling space compared to a year ago, had a positive effect on front store sales growth. On a same-store basis, front store sales increased 2.6% during the quarter.
Second quarter net earnings were $147 million compared to $145 million in the same period last year. On a diluted basis, net earnings per share were 73 cents in the second quarter of 2013 compared to 69 cents in the same period last year, an increase of 5.8%. Net earnings for the second quarter of last year included a charge of $5 million (pre-tax) from the closure of two Murale stores. Excluding the impact of this charge, adjusted net earnings for the second quarter of 2012 were $149 million or 71 cents per share. Year-over-year, gross profit dollars increased 1.9% in the second quarter of 2013, as the benefits from strong sales and prescription count growth were partially offset by downward pressure on margins in the dispensary, largely due to the implementation of additional drug system reform measures, and in the front of the store where the competitive environment remains very promotional. Operating and administrative expenses, including depreciation and amortization expense, increased 2.9% compared to the same period last year, with last year's amount adjusted to exclude the aforementioned charge of $5 million (pre-tax) from the closure of two Murale stores. Year-over-year growth in operating and administrative expenses was driven largely by higher store-level expenses, primarily occupancy, wages and benefits related to network growth and expansion initiatives, including acquisitions. In addition to the earnings factors noted above, the cumulative impact of the Company's share repurchase program had a positive impact on growth in net earnings per share during the second quarter of 2013, as there were 3.8% fewer diluted shares outstanding (on a weighted average basis) compared to the second quarter of last year.
Commenting on the quarter, Domenic Pilla, President and CEO stated, "We are pleased with our second quarter operating and financial results. Together with our Associate-owners and their teams at store level, we continue to execute on our strategic priorities and growth initiatives which are driving sales and market share gains in our core health, beauty and convenience categories. At the same time, we remain diligent in our efforts to reduce costs and drive efficiencies across the business. Our efforts thus far have us well-positioned heading into the back half of the year in what remains a challenging economic, competitive and regulatory environment."
First Half Results (24 Weeks)
First half sales were $5.024 billion, an increase of 3.6% over the same period last year, with pharmacy sales up 3.2% and front store sales up 3.9%. On a same-store basis, first half sales increased 2.2%, with pharmacy sales up 1.4% and front store sales up 2.9%. During the first half of 2013, the number of prescriptions dispensed at retail increased 7.1% compared to the same period last year and was up 5.3% on a same-store basis. Generic molecules represented 61.0% of prescriptions dispensed in the first half of 2013 compared to 58.1% in the same period last year. In the first half of 2013, pharmacy sales accounted for 48.1% of the Company's sales mix compared to 48.2% in the first half of last year.
First half net earnings were $266 million compared to $264 million in the same period last year. On a diluted basis, net earnings per share were $1.31 in the first half of 2013 compared to $1.25 in the same period last year, an increase of 4.8%. Net earnings for the first half of last year included the aforementioned charge of $5 million (pre-tax) from the closure of two Murale stores. Excluding the impact of this charge, adjusted net earnings for the first half of 2012 were $268 million or $1.27 per share.
Store Network Development
During the second quarter, the Company opened eight new drug stores, six of which were relocations, and completed four major drug store expansions. In addition to this activity, three smaller drug stores were consolidated or closed. At quarter-end, there were 1,367 stores in the system, comprised of 1,299 drug stores (1,242 Shoppers Drug Mart/Pharmaprix stores and 57 Shoppers Simply Pharmacy/Pharmaprix Simplement Santé stores), 62 Shoppers Home Health Care stores and six Murale stores. Retail selling space was in excess of 13.8 million square feet at the end of the second quarter of 2013, an increase of 2.3% compared to a year ago.
The Company also announced today that its Board of Directors has declared a dividend of 28.5 cents per common share, payable October 15, 2013 to shareholders of record as of the close of business on September 30, 2013.
Normal Course Issuer Bid Program
During the second quarter of 2013, the Company repurchased 2,040,000 common shares under its normal course issuer bid program at an aggregate cost of $92.6 million, representing an average repurchase price of $45.38 per common share. Year-to-date, the Company has repurchased 4,049,400 common shares under its normal course issuer bid program at an aggregate cost of $178.2 million, representing an average repurchase price of $44.00 per common share. All repurchased common shares were subsequently cancelled.
Other Business Matters
Subsequent to the end of the quarter, the Company announced on July 15, 2013 that it has entered into a definitive agreement with Loblaw Companies Limited ("Loblaw") under which Loblaw will acquire all of the outstanding common shares of the Company for $33.18 in cash plus 0.5965 Loblaw common shares per each Shoppers Drug Mart Corporation common share, on a fully pro-rated basis. The transaction will be carried out by way of a court-approved plan of arrangement and will require the approval of at least 66 2/3% of the votes cast by the shareholders of the Company at a special meeting expected to take place in September 2013. In addition to court approval of the plan of arrangement and approval by the Company's shareholders, the transaction is subject to compliance with the Competition Act and certain other closing conditions customary in transactions of this nature. The Company anticipates that the transaction will be completed within six to seven months.
The Company will hold an analyst call at 3:00 p.m. (Eastern Daylight Time) today to discuss its second quarter results. The call may be accessed by dialing 416-695-7806 from within the Toronto area, or 1-888-789-9572 outside of Toronto. The seven-digit participant pass code number is 6118772. The call will also be simulcast on the Company's website for all interested parties. The webcast can be accessed via the Investor Relations section of the Shoppers Drug Mart website at www.shoppersdrugmart.ca. The conference call will be archived in the Investor Relations section of the Shoppers Drug Mart website until the Company's next analyst call. A playback of the call will also be available by telephone until 11:59 p.m. (Eastern Daylight Time) on August 1, 2013. The call playback can be accessed after 5:00 p.m. (Eastern Daylight Time) on Thursday, July 18, 2013 by dialing 905-694-9451 from within the Toronto area, or 1-800-408-3053 outside of Toronto. The seven-digit pass code number is 4627381.
About Shoppers Drug Mart Corporation
Shoppers Drug Mart Corporation is one of the most recognized and trusted names in Canadian retailing. The Company is the licensor of full-service retail drug stores operating under the name Shoppers Drug Mart (Pharmaprix in Québec). With 1,242 Shoppers Drug Mart and Pharmaprix stores operating in prime locations in each province and two territories, the Company is one of the most convenient retailers in Canada. The Company also licenses or owns 57 medical clinic pharmacies operating under the name Shoppers Simply Pharmacy (Pharmaprix Simplement Santé in Québec) and six luxury beauty destinations operating as Murale. As well, the Company owns and operates 62 Shoppers Home Health Care stores, making it the largest Canadian retailer of home health care products and services. In addition to its retail store network, the Company owns Shoppers Drug Mart Specialty Health Network Inc., a provider of specialty drug distribution, pharmacy and comprehensive patient support services; and MediSystem Technologies Inc., a provider of pharmaceutical products and services to long-term care facilities.
For more information, visit www.shoppersdrugmart.ca.
Forward-looking Information and Statements
This news release, including the Management's Discussion and Analysis, (collectively, the "News Release"), contains forward-looking information and statements which constitute "forward-looking information" under Canadian securities law and which may be material regarding, among other things, the Company's beliefs, plans, objectives, estimates, intentions and expectations. Forward-looking information and statements are typically identified by words such as "anticipate", "believe", "expect", "estimate", "forecast", "goal", "intend", "plan", "will", "may", "should", "could" and similar expressions. Specific forward-looking information in this News Release includes, but is not limited to, statements with respect to the Company's future liquidity and the ability to execute on its future operating, investing and financing strategies.
The forward-looking information and statements contained herein reflect the Company's current estimates, beliefs and assumptions, which are based on management's perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances, including but not limited to, assumptions regarding: revenue growth and operating efficiencies; the absence of an adverse event or condition that damages the Company's strong brand position and reputation; the absence of a material increase in competition; there being no significant change in the Company's ability to comply with current or future regulatory requirements; and generally stable economic and financial conditions in Canada and globally. Inherent in the forward-looking information and statements are known and unknown risks, uncertainties and other factors beyond the Company's ability to control or predict, which give rise to the possibility that the Company's predictions, forecasts, expectations or conclusions will not prove to be accurate, that its assumptions may not be correct and that the Company's plans, objectives and statements will not be achieved. Actual results or developments may differ materially from those contemplated by the forward-looking information and statements.
The material risk factors that could cause actual results to differ materially from the estimates, beliefs and assumptions expressed or implied in the forward-looking information and statements contained herein include, without limitation: the risk of adverse changes to laws and regulations relating to prescription drugs and their sale, including pharmacy reimbursement programs, prescription drug pricing and the availability of manufacturer allowances, or changes to such laws and regulations that increase compliance costs; the risk that the Company will be unable to implement successful strategies to manage the impact of the drug system reform initiatives implemented or proposed in most provincial jurisdictions; the risk of adverse changes in economic and financial conditions in Canada and globally; the risk of increased competition from other retailers or non-traditional retail channels for distribution of prescription drugs; the risk of an inability of the Company to manage growth and maintain its profitability; the risk of exposure to fluctuations in interest rates; the risk of material adverse changes in foreign currency exchange rates; the risk of an inability to attract and retain pharmacists and key employees or effectively manage succession planning; the risk of an inability of the Company's information technology systems to support the requirements of the Company's business; the risk of changes to estimated contributions of the Company in respect of its pension plans or post-employment benefit plans which may adversely impact the Company's financial performance; the risk of changes to the relationships of the Company with third-party service providers; the risk that the Company will not be able to lease or obtain suitable store locations on economically favourable terms; the risk of adverse changes to the Company's results of operations due to seasonal fluctuations; the risk of an inability of the Company to respond to changing consumer preferences that may result in excess inventory, inventory levels that are insufficient to meet demand or inventory obsolescence; risks associated with alternative arrangements for sourcing generic drug products, including intellectual property and product liability risks; the risk that new, or changes to current, federal and provincial laws, rules and regulations, including environmental and privacy laws, rules and regulations, may adversely impact the Company's business and operations; the risk that violations of law, breaches of Company policies or unethical behaviour may adversely impact the Company's financial performance; property and casualty risks; the risk of injuries at the workplace or health issues; the risk that changes in tax law, or changes in the way that tax law is expected to be interpreted, may adversely impact the Company's business and operations; the risk that new, or changes to existing, accounting pronouncements may adversely impact the Company; the risks associated with the performance of the Associate-owned store network; the risk of material adverse effects arising as a result of litigation; the risk of damage to the reputation of brands promoted by the Company, or to the reputation of any supplier or manufacturer of these brands; product quality and product safety risks which could expose the Company to product liability claims and negative publicity; the risk that events or a series of events may cause business interruptions; and the risk of disruptions to the Company's distribution operations or supply chain which could affect the cost, timely delivery and availability of merchandise.
This is not an exhaustive list of the factors that may affect any of the Company's forward-looking information and statements. Investors and others should carefully consider these and other factors and not place undue reliance on the forward-looking information and statements. Further information regarding these and other factors is included in the Company's public filings with provincial securities regulatory authorities including, without limitation, the sections entitled "Risks and Risk Management" and "Risks Associated with Financial Instruments" in the Company's Management's Discussion and Analysis for the 52 week period ended December 29, 2012 and for the 12 week period ended March 23, 2013. The forward-looking information and statements contained in this News Release represent the Company's views only as of the date hereof. While the Company anticipates that subsequent events and developments may cause the Company's views to change, the Company does not undertake to update any forward-looking information and statements, except to the extent required by applicable securities laws.
Additional information about the Company, including the Annual Information Form, can be found at www.sedar.com.
To immediately view and download Shoppers Drug Mart Corporation's second quarter of 2013 management's discussion and analysis and unaudited condensed consolidated financial statements, please access the following links:
The Company reports its financial results in accordance with International Financial Reporting Standards ("IFRS"). However, the Q2/2013 Management's Discussion and Analysis accessible through the foregoing link contains references to non-IFRS financial measures, such as adjusted operating and administrative expenses, adjusted operating income, operating margin, adjusted operating margin, EBITDA (earnings before finance expenses, income taxes and depreciation and amortization), adjusted EBITDA, EBITDA margin, adjusted EBITDA margin, adjusted net earnings, adjusted net earnings per share and cash interest expense. These non-IFRS financial measures do not have standardized meanings prescribed by IFRS and, therefore, may not be comparable to similarly titled measures presented by other reporting issuers.
These non-IFRS financial measures have been included in the Q2/2013 Management's Discussion and Analysis as they are measures which management uses to assist in evaluating the Company's operating performance against its expectations and against other companies in the retail drug store industry. Management believes that non-IFRS financial measures assist in identifying underlying operating trends.
These non-IFRS financial measures, particularly EBITDA, adjusted EBITDA, EBITDA margin and adjusted EBITDA margin, are also common measures used by investors, financial analysts and rating agencies. These groups may use EBITDA, adjusted EBITDA, EBITDA margin, adjusted EBITDA margin and other non-IFRS financial measures to value the Company and assess the Company's ability to service its debt.
SOURCE: Shoppers Drug Mart Corporation
For further information:
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