Shoppers Drug Mart Corporation reports third quarter results
Nov 12, 2013
- Strong performance in a challenging business environment
- Continued strength in sales and prescription count growth
TORONTO, Nov. 12, 2013 /CNW/ - Shoppers Drug Mart Corporation (TSX: SC) today announced its financial results for the third quarter ended October 5, 2013.
Third Quarter Year-Over-Year Highlights
- Sales increase of 2.4% to $3.287 billion
- Same-store increase of 2.2%
- Pharmacy sales increase of 2.7% to $1.582 billion
- Same-store increase of 1.8%
- Retail prescription count increase of 5.3%
- Same-store increase of 4.1%
- Front store sales increase of 2.2% to $1.705 billion
- Same-store increase of 2.4%
- Net earnings per share of $0.83, an increase of 2.5%
- Adjusted net earnings per share of $0.88, an increase of 3.5% compared to adjusted net earnings per share of $0.85
- Sales increase of 3.1% to $8.311 billion
- Same-store increase of 2.2%
- Pharmacy sales increase of 3.0% to $3.996 billion
- Same-store increase of 1.6%
- Retail prescription count increase of 6.4%
- Same-store increase of 4.8%
- Front store sales increase of 3.2% to $4.315 billion
- Same-store increase of 2.7%
- Net earnings per share of $2.14, an increase of 3.9%
- Adjusted net earnings per share of $2.19, an increase of 2.8% compared to adjusted net earnings per share of $2.13
Third Quarter Results (16 Weeks)
Third quarter sales were $3.287 billion, an increase of 2.4% over the same period last year, driven by continued strength in prescription count growth and solid results in the front of the store, where the average basket size increased on steady customer traffic. On a same-store basis, sales increased 2.2% during the quarter.
Pharmacy sales were $1.582 billion in the third quarter, an increase of 2.7% 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 long-term care business, were partially offset by a further reduction in average prescription value. On a same-store basis, pharmacy sales increased 1.8% during the quarter. During the third quarter of 2013, the number of prescriptions dispensed at retail increased 5.3% compared to the same period last year and was up 4.1% on a same-store basis. Consistent with recent quarterly trends, pharmacy volume growth remains strongest in Ontario and Alberta. Year-over-year, average prescription value at retail declined a further 2.7% during the third quarter of 2013, largely the result of further reductions in generic prescription reimbursement rates due to ongoing drug system reform initiatives in all provincial jurisdictions, along with increasing generic prescription utilization rates. Generic molecules represented 61.6% of prescriptions dispensed in the third quarter of 2013 compared to 60.1% in the same period last year. In the third quarter of 2013, pharmacy sales accounted for 48.1% of the Company's sales mix compared to 48.0% in the same quarter of last year.
Front store sales were $1.705 billion in the third quarter, an increase of 2.2% compared to the same period last year, led by strong growth in cosmetics, over-the-counter medications and food and confection. In response to heightened competitive pressure in the marketplace, the Company invested more heavily in promotional activity in the third quarter of 2013, which proved effective in driving an increase in average basket size. On a same-store basis, front store sales increased 2.4% during the quarter.
Third quarter net earnings were $166 million compared to $168 million in the same period last year. On a diluted basis, net earnings per share were 83 cents in the third quarter of 2013 compared to 81 cents in the same period last year, an increase of 2.5%. Net earnings for the third quarter of 2013 are inclusive of transaction-related costs of $14 million (pre-tax) associated with the pending acquisition of the Company by Loblaw Companies Limited ("Loblaw"). Net earnings for the third quarter of the prior year included a charge of $13 million (pre-tax) stemming primarily from a rationalization of the Company's central office functions. On a diluted basis and excluding the impact of these items, adjusted net earnings per share were 88 cents in the third quarter of 2013 compared to 85 cents in the same period last year, an increase of 3.5%. Adjusted net earnings per share for both years included comparable pre-tax gains on disposal of approximately $13 million in respect of sale-leaseback transactions. Year-over-year, gross profit dollars increased 2.2% in the third 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 competitive activity intensified. Operating and administrative expenses, including depreciation and amortization expense, increased 3.4% year-over-year driven in part by higher store-level expenses, primarily occupancy, wages and benefits, and by increased expenses at MediSystem Technologies Inc. which is commensurate with sales growth in the Company's long-term care business. Year-over-year growth in the Company's depreciation and amortization expense can be attributed to network growth and expansion initiatives, including higher amortization of prescription files related to acquisitions, along with additional investments in supporting infrastructure. Other factors that positively impacted net earnings for the third quarter of 2013 were lower finance expenses and a reduction in the Company's effective income tax rate. 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 third quarter of 2013, as there were 3.4% fewer diluted shares outstanding (on a weighted average basis) compared to the third quarter of last year.
Commenting on the quarter, Domenic Pilla, President and CEO stated, "We are pleased with our third quarter results. In what was an eventful quarter for our Company, we continued to execute on our strategic priorities and initiatives while never compromising on our commitment to providing the best in patient care and customer service. For that, I would like to thank our employees, Associate-owners and their teams at store level for their efforts and contributions in what is also a very challenging economic, competitive and regulatory environment. The pending acquisition of the Company by Loblaw Companies Limited will change the retail landscape in this country by bringing together Canada's leading food and pharmacy retailers. And while this transaction must still be reviewed and approved by the Competition Bureau, we are excited by the prospects of new growth opportunities, enhancing our product and service offering and meeting the challenges facing our collective teams."
Year-to-date Results (40 Weeks)
Sales for the first three quarters of 2013 were $8.311 billion, an increase of 3.1% over the same period last year, with pharmacy sales up 3.0% and front store sales up 3.2%. On a same-store basis, year-to-date sales increased 2.2%, with pharmacy sales up 1.6% and front store sales up 2.7%. During the first three quarters of 2013, the number of prescriptions dispensed at retail increased 6.4% compared to the same period last year and was up 4.8% on a same-store basis. Generic molecules represented 61.2% of prescriptions dispensed in the first three quarters of 2013 compared to 58.9% in the same period last year. In the first three quarters of 2013, pharmacy sales accounted for 48.1% of the Company's sales mix, unchanged from the same period last year.
Net earnings for the first three quarters of 2013 were $432 million, unchanged from the same period last year. On a diluted basis, net earnings per share were $2.14 in the first three quarters of 2013 compared to $2.06 in the same period last year, an increase of 3.9%. As noted above, net earnings for the first three quarters of 2013 are inclusive of transaction-related costs of $14 million (pre-tax). Included in net earnings for the first three quarters of 2012 was a second quarter charge of $5 million (pre-tax) from the closure of two Murale stores, which is in addition to the restructuring charge of $13 million (pre-tax), also noted above. On a diluted basis and excluding the impact of these items, adjusted net earnings per share were $2.19 for the first three quarters of 2013 compared to $2.13 in the same period last year, an increase of 2.8%.
Store Network Development
During the third quarter, the Company opened six new drug stores, one of which was a relocation, and completed five major drug store expansions. In addition to this activity, three smaller outpatient hospital pharmacies were closed. At quarter-end, there were 1,369 stores in the system, comprised of 1,301 drug stores (1,246 Shoppers Drug Mart/Pharmaprix stores and 55 Shoppers Simply Pharmacy/Pharmaprix Simplement Santé stores), 62 Shoppers Home Health Care stores and six Murale stores. Retail selling space was approximately 13.9 million square feet at the end of the third quarter of 2013, an increase of 1.3% 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 January 15, 2014 to shareholders of record as of the close of business on December 31, 2013.
Normal Course Issuer Bid Program
During the third quarter of 2013, the Company repurchased 475,000 common shares under its normal course issuer bid program at an aggregate cost of $22.6 million, representing an average repurchase price of $47.64 per common share. Year-to-date, the Company has repurchased 4,524,400 common shares under its normal course issuer bid program at an aggregate cost of $200.8 million, representing an average repurchase price of $44.38 per common share. All repurchased common shares were subsequently cancelled and the Company has not repurchased any common shares under this program since July 12, 2013.
Other Business Matters
The Company announced on July 15, 2013 that it entered into a definitive agreement with 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, which will be carried out by way of a court-approved plan of arrangement, was approved by 99.89% of the votes cast by the shareholders of the Company at a special meeting that took place on September 12, 2013, and subsequently received court approval on September 16, 2013. Completion of 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 before the end of the first quarter of 2014.
The Company will hold an analyst call at 3:00 p.m. (Eastern Standard Time) today to discuss its third quarter results. The call may be accessed by dialing 416-340-2217 from within the Toronto area, or 1-866-696-5910 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 Standard Time) on November 26, 2013. The call playback can be accessed after 5:00 p.m. (Eastern Standard Time) on Tuesday, November 12, 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 3975821.
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 1,246 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 55 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", "foresee", "expect", "estimate", "forecast", "goal", "intend", "plan", "seek", "strive", "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; as well as statements concerning the expected completion date and anticipated benefits of the acquisition of the Company by Loblaw.
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, for the 12 week period ended March 23, 2013 and for the 12 and 24 week periods ended June 15, 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 third 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 Q3/2013 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 depreciation and amortization expense, 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 Q3/2013 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
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