Shoppers Drug Mart Corporation reports strong fourth quarter results
Feb 6, 2014
- Momentum continues
- Sales gains in pharmacy and front of store
- Ongoing strength in prescription count growth
TORONTO, Feb. 6, 2014 /CNW/ - Shoppers Drug Mart Corporation (TSX: SC) today announced its unaudited financial results for the fourth quarter and fiscal year ended December 28, 2013.
Fourth Quarter Year-Over-Year Highlights
- Sales increase of 0.9% to $2.747 billion
- Same-store increase of 1.2%
- Pharmacy sales increase of 0.8% to $1.230 billion
- Same-store increase of 0.5%
- Retail prescription count increase of 5.0%
- Same-store increase of 4.7%
- Front store sales increase of 1.1% to $1.517 billion
- Same-store increase of 1.7%
- Net earnings per share of $0.85
- Adjusted net earnings per share of $0.86, an increase of 1.2%
Fiscal 2013 Highlights
- Sales increase of 2.6% to $11.058 billion
- Same-store increase of 1.9%
- Pharmacy sales increase of 2.5% to $5.226 billion
- Same-store increase of 1.3%
- Retail prescription count increase of 6.1%
- Same-store increase of 4.8%
- Front store sales increase of 2.6% to $5.831 billion
- Same-store increase of 2.5%
- Net earnings per share of $2.99, an increase of 2.7%
- Adjusted net earnings per share of $3.05, an increase of 2.7%
- Shareholder distributions of $430 million
- Declared four quarterly dividends of 28.5 cents per common share
- Repurchased 4,524,400 common shares at an aggregate cost of $201 million
Fourth Quarter Results (12 Weeks)
Fourth quarter sales were $2.747 billion, an increase of 0.9% over the same period of the prior year, driven by sales gains in the front of the store and continued strength in prescription count growth. On a same-store basis, sales increased 1.2% during the quarter.
Pharmacy sales were $1.230 billion in the fourth quarter, an increase of 0.8% compared to the same period of the prior year, as strong growth in the number of prescriptions filled at retail was partially offset by a further reduction in average prescription value. On a same-store basis, pharmacy sales increased 0.5% during the quarter. During the fourth quarter of 2013, the number of prescriptions dispensed at retail increased 5.0% compared to the same period of the prior year and was up 4.7% on a same-store basis. Pharmacy volume growth was evident in all regions of the country and remains particularly strong in Ontario. Year-over-year, average prescription value at retail declined a further 3.8% during the fourth 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 comprised 62.4% of prescriptions dispensed in the fourth quarter of 2013 compared to 60.2% in the same period of the prior year. In the fourth quarter of 2013, pharmacy sales accounted for 44.8% of the Company's sales mix, unchanged from the same quarter of the prior year.
Front store sales were $1.517 billion in the fourth quarter, an increase of 1.1% compared to the same period of the prior year, led by strong growth in cosmetics and food and confection. This is a particularly strong result relative to the marketplace and given that sales of OTC medications declined year-over-year in the absence of a strong cough and cold season compared to the fourth quarter of last year. This result also reflects continued market share gains, a testament to the effectiveness of the Company's promotional campaigns and seasonal merchandising programs. On a same-store basis, front store sales increased 1.7% during the fourth quarter of 2013.
Net earnings, inclusive of transaction-related costs of $3 million (pre-tax) associated with the pending acquisition of the Company by Loblaw Companies Limited ("Loblaw"), were $169 million in the fourth quarter of 2013. Excluding the impact of these costs, adjusted net earnings for the fourth quarter of 2013 were $172 million compared to net earnings of $175 million in the same period of the prior year. On a diluted basis, adjusted net earnings per share were 86 cents in the fourth quarter of 2013 compared to net earnings per share of 85 cents in the same period of the prior year, an increase of 1.2%. Year-over-year, gross profit dollars increased 0.8% in the fourth quarter of 2013, essentially in-line with total sales growth, as the level of promotional intensity in the marketplace remained high. Operating and administrative expenses, including depreciation and amortization expense, increased 2.4% compared to the same period last year. Excluding the impact of the aforementioned costs of $3 million associated with the pending acquisition of the Company by Loblaw, adjusted operating and administrative expenses were up 2.0% year-over-year, driven largely by higher store-level expenses, primarily occupancy, wages and benefits, and by increased marketing expenses. Other factors that positively impacted net earnings for the fourth 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 adjusted net earnings per share during the fourth quarter of 2013, as there were 2.4% fewer diluted shares outstanding (on a weighted average basis) compared to the fourth quarter of 2012.
Commenting on the results, Domenic Pilla, President and CEO stated, "We are pleased with our fourth quarter and full year operating and financial results. By any measure, our performance in the fourth quarter of 2013 is a successful conclusion to what has been a very successful year for our Company and its shareholders. In what remains a highly-competitive and challenging marketplace, it is clear that our value proposition and unwavering commitment to provide the best in patient-care and customer service continues to resonate with patients and customers alike. On behalf of our shareholders and the Board of Directors, I would like to thank our corporate and regional office employees, along with our Associates and their teams at store level, for their efforts and contributions to our collective success in 2013." Commenting on the pending acquisition of the Company by Loblaw, Mr. Pilla went on to say, "While the transaction must still be reviewed and approved by the Competition Bureau, we look forward to the conclusion of this process and the resultant combination of Canada's leading food and pharmacy retailers."
Fiscal 2013 Results (52 Weeks)
Sales in 2013 were $11.058 billion compared to $10.782 billion in 2012, an increase of $276 million or 2.6%. The Company experienced sales increases in all regions of the country, driven by strong volume growth in its retail and long-term care pharmacy businesses, and by continued sales and market share gains in the front of the store. The Company's capital investment and store development program also had a positive impact on sales growth during the year. On a same-store basis, sales increased 1.9% in 2013.
Pharmacy sales were $5.226 billion in 2013 compared to $5.100 billion in 2012, an increase of $126 million or 2.5%, as strong growth in the number of prescriptions filled at retail, combined with further sales gains in the Company's MediSystem Technologies business, were partially offset by a further decline in average prescription value. On a same-store basis, pharmacy sales increased 1.3% during the year. During 2013, the number of prescriptions dispensed at retail increased 6.1% over the prior year and was up 4.8% on a same-store basis. Pharmacy volume growth remains strongest in Ontario, where the Company continues to benefit from the successful implementation of its 2012 initiative to waive the co-pay on eligible prescriptions for seniors, and in Western Canada, where the Company experienced the full-year benefit of a number of acquisitions that were completed in the second half of 2012. Year-over-year, average prescription value at retail declined by a further 3.8% in 2013, a decrease that can be largely attributed to further reductions in generic prescription reimbursement rates due to ongoing drug system reform initiatives in all provincial jurisdictions, combined with greater generic prescription utilization rates. Generic molecules comprised 61.5% of prescriptions dispensed in 2013 compared to 59.2% in the prior year. In 2013, pharmacy sales accounted for 47.3% of the Company's sales mix, unchanged from the prior year.
Front store sales were $5.831 billion in 2013 compared to $5.681 billion in 2012, an increase of $150 million or 2.6%, with the Company posting sales gains in all categories, led by strong growth in cosmetics, OTC medications and food and confection. On a same-store basis, front store sales increased 2.5% in 2013. In addition to square footage growth, effective marketing and promotional campaigns, including further investments in pricing, proved to be impactful in terms of driving growth in transaction counts and average basket size over the course of 2013.
Net earnings in 2013 were $602 million compared to $606 million in 2012. Net earnings for 2013 are inclusive of third and fourth quarter transaction-related costs of $17 million (pre-tax) in aggregate, associated with the pending acquisition of the Company by Loblaw. Net earnings for 2012 included a third quarter charge of $13 million (pre-tax) stemming primarily from the rationalization and realignment of the Company's central office functions, as well as a second quarter charge of $5 million (pre-tax) from the closure of two Murale stores. Excluding the impact of the items noted above, adjusted net earnings for 2013 were $614 million compared to adjusted net earnings of $620 million in 2012. On a diluted basis, adjusted net earnings per share were $3.05 in 2013 compared to $2.97 in 2012, an increase of 2.7%. 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. During 2013, the Company maintained positive sales momentum and top-line growth by leveraging incremental pharmacy traffic and continuing to focus on promotional effectiveness, resulting in a year-over-year increase in gross profit dollars of 2.2%. In 2013, operating and administrative expenses, including depreciation and amortization expense but excluding the transaction-related costs noted above, were up 3.3% over the prior year. This increase was driven in part by higher store-level expenses, primarily occupancy wages and benefits related to network growth and expansion initiatives, and by increased expenses at MediSystem Technologies Inc. which is commensurate with sales growth in the Company's long-term care business. As well, the Company invested more in marketing and promotions in 2013, including additional amounts directed towards pharmacy services and beauty. Other factors that positively impacted net earnings in 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 earnings per share during 2013, as there were 3.4% fewer diluted shares outstanding (on a weighted average basis) compared to 2012.
Store Network Development
During the fourth quarter, the Company opened eight new drug stores, three of which were relocations, and completed four major drug store expansions. The Company also acquired five drug stores during the quarter, two of which were amalgamated with existing stores. For the fiscal year ended December 28, 2013, the Company opened 29 new drug stores, 11 of which were relocations, and completed 19 major drug store expansions. The Company also acquired 10 drug stores, three of which were amalgamated with existing stores, and one long-term care pharmacy. In addition to this activity, eight smaller drug stores were consolidated or closed and three outpatient hospital pharmacies were closed. The Company also relocated one Shoppers Home Health Care store during the year. At the end of 2013, there were 1,377 stores in the system, comprised of 1,309 drug stores (1,253 Shoppers Drug Mart/Pharmaprix stores and 56 Shoppers Simply Pharmacy/Pharmaprix Simplement Santé stores), 62 Shoppers Home Health Care stores and six Murale stores. During 2013, the selling square footage of the retail store network increased by 2.5% to 14.0 million square feet at year end.
The Company also announced today that its Board of Directors has declared a dividend of 28.5 cents per common share, payable April 1, 2014 to shareholders of record as of March 15, 2014.
Normal Course Issuer Bid Program
During the fourth quarter of 2013, the Company did not repurchase any shares under its normal course issuer bid program. For the fiscal year ended December 28, 2013, the Company repurchased 4,524,400 common shares under its normal course issuer bid program at an aggregate cost of $201 million, representing an average repurchase price of $44.38 per common share. All repurchased common shares were subsequently cancelled. The Company has not repurchased any common shares under this program since July 12, 2013. The Company's current normal course issuer bid program will terminate on February 14, 2014 and the program will not be renewed.
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 calendar quarter of 2014.
The Company anticipates that its audited consolidated financial statements and the notes thereto for the year ended December 28, 2013 and Management's Discussion and Analysis for the year ended December 28, 2013, including further discussion and analysis of fourth quarter events or items that affected results of operations, financial position and cash flows, will be available on or before March 28, 2014. Once filed, both documents will be available in the Investor Relations section of the Company's website at www.shoppersdrugmart.ca, as well as on the Canadian Securities Administrators' website at www.sedar.com. Both documents would also be contained within a 2013 Annual Report for the Company which, if prepared, will also be available at www.sedar.com.
The Company will hold an analyst call at 3:00 p.m. (Eastern Standard Time) today to discuss its fourth 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. A playback of the call will also be available by telephone until 11:59 p.m. (Eastern Standard Time) on February 20, 2014. The call playback can be accessed after 5:00 p.m. (Eastern Standard Time) on Thursday, February 6, 2014 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 more than 1,253 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 56 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 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.
This news release also contains forward-looking information and statements concerning the expected completion date of the acquisition of the Company by Loblaw (the "Acquisition"). There can be no assurance that the Acquisition will occur or that the anticipated strategic benefits and operational, competitive and cost synergies will be realized. The Acquisition is subject to various regulatory approvals, including approvals under the Competition Act (Canada) and by the Toronto Stock Exchange, and the fulfillment of certain conditions, and there can be no assurance that any such approvals will be obtained and/or any such conditions will be met. The Acquisition could be modified, restructured or terminated.
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, for the 12 and 24 week periods ended June 15, 2013 and for the 16 and 40 week periods ended October 5, 2013, and the section entitled "Risks Relating to the Arrangement and the Combined Company" in the Management Proxy Circular dated August 12, 2013 for the special meeting of Company shareholders that approved the Arrangement. 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 fourth quarter of 2013 unaudited condensed consolidated financial statements, please access the following link:
SOURCE Shoppers Drug Mart Corporation
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