Shoppers Drug Mart Corporation Reports First Quarter Results
Apr 26, 2012
CONTINUED GROWTH IN SALES AND EARNINGS PER SHARE
TORONTO, April 26, 2012 /CNW/ - Shoppers Drug Mart Corporation (TSX: SC) today announced its financial results for the first quarter ended March 24, 2012.
First Quarter Year-Over-Year Highlights
Sales increase of 2.0% to $2.394 billion
- Same-store increase of 1.5%
Pharmacy sales increase of 1.6% to $1.168 billion
- Same-store increase of 1.1%
Retail prescription count increase of 2.9%
- Same-store increase of 2.7%
Front store sales increase of 2.5% to $1.226 billion
- Same-store increase of 2.0%
Net earnings per share of $0.56, an increase of 3.7%
- Repurchased 1,819,700 common shares at an aggregate cost of $75 million
First Quarter Results (12 Weeks)
First quarter sales were $2.394 billion, an increase of 2.0% over the same period last year, driven by modest sales growth in pharmacy and stronger results in the front of the store. On a same-store basis, sales increased 1.5% during the quarter. A calendar shift that resulted in the inclusion of an additional statutory holiday (New Years Day) in the first quarter of 2012, combined with a relatively weak cold and flu season, served to moderate the rate of increase in year-over-year sales growth.
Prescription sales were $1.168 billion in the first quarter, an increase of 1.6% compared to the same period last year, as growth in the number of prescriptions filled continues to be partially offset by a reduction in average prescription value. On a same-store basis, prescription sales increased 1.1% during the quarter. During the first quarter of 2012, the number of prescriptions dispensed at retail increased 2.9% compared to the same period last year and was up 2.7% on a same-store basis. Adjusting for the impact of the calendar shift noted above, it is estimated that the number of prescriptions dispensed at retail would have increased 3.5% year-over-year and would have been up 3.2% on a same-store basis. The decrease in average prescription value can be largely attributed to a reduction in generic prescription reimbursement rates, the result of recently implemented and ongoing drug system reform initiatives in certain jurisdictions of Canada, along with increasing generic prescription utilization rates. Generic molecules represented 57.6% of prescriptions dispensed in the first quarter of 2012 compared to 56.6% of prescriptions dispensed in the same period last year. In the first quarter of 2012, prescription sales accounted for 48.8% of the Company's sales mix compared to 49.0% of the Company's sales mix in the same quarter of last year.
Front store sales were $1.226 billion in the first quarter, an increase of 2.5% compared to the same period last year, led by strong sales gains in cosmetics and select convenience categories, notably food and confection. The Company's store network development program, which resulted in a 4.2% increase in selling space compared to a year ago, was also a contributing factor to sales growth in the front of the store. On a same-store basis, front store sales increased 2.0% during the first quarter of 2012, a solid result considering the negative impact of the calendar shift and seasonality factor noted above.
First quarter net earnings were $119 million compared to $118 million in the same period last year. On a fully diluted basis, net earnings per share were 56 cents in the first quarter of 2012 compared to 54 cents per share in the same period last year, an increase of 3.7%. Strong sales in the front of the store, combined with a disciplined approach to managing pricing and promotional activities, served to offset further downward pressure on sales and margins in the dispensary, resulting in a 3.6% increase in gross profit dollars compared to the first quarter of last year. Operating and administrative expenses, inclusive of depreciation and amortization expense, increased 4.9% compared to the same period last year, driven largely by higher store-level expenses, primarily occupancy, wages and benefits related to the Company's network growth and expansion initiatives, along with increased Associate earnings. Other factors that contributed to growth in net earnings for the first quarter of 2012 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 first quarter of 2012, as there were 2.6% fewer fully diluted shares outstanding compared to the first quarter of last year.
Commenting on the quarter, Domenic Pilla, President and CEO stated, "We are encouraged by our first quarter operating and financial results. This is a solid performance and a good start to the year in what remains a challenging economic and regulatory environment. Together with our Associate-owners and their teams at store-level, we continue to work through the impact of regulatory reforms on our business, while never compromising on our commitment to providing the best in patient care and customer service."
Store Network Development
During the first quarter, 14 drug stores were opened or acquired, six of which were relocations, and two smaller drug stores were closed. The Company also completed three major drug store expansions during the quarter. In addition to this activity, seven existing drug stores were remodeled, converting them to smaller prototype formats. At quarter-end, there were 1,334 stores in the system, comprised of 1,263 drug stores (1,206 Shoppers Drug Mart/Pharmaprix stores and 57 Shoppers Simply Pharmacy/Pharmaprix Simplement Santé stores), 63 Shoppers Home Health Care stores and eight Murale stores. Retail selling space was approximately 13.4 million square feet at the end of the first quarter of 2012, an increase of 4.2% compared to a year ago.
The Company also announced today that its Board of Directors has declared a dividend of 26.5 cents per common share, payable July 13, 2012 to shareholders of record as of the close of business on June 29, 2012.
Normal Course Issuer Bid Program
During the first quarter of 2012, the Company repurchased 1,819,700 common shares under its normal course issuer bid program at an aggregate cost of $75 million, representing an average repurchase price of $41.16 per common share. All repurchased shares were subsequently cancelled.
The Company will hold an analyst call at 3:00 p.m. (Eastern Daylight Time) today to discuss its first 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 8845571. 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 May 10, 2012. The call playback can be accessed after 5:00 p.m. (Eastern Daylight Time) on Thursday, April 26, 2012 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 7754215.
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 1,206 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 eight luxury beauty destinations operating as Murale. As well, the Company owns and operates 63 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 operating and financial results, its capital expenditure plans, its dividend and shareholder distribution policies and the ability to execute on its future operating, investing and financing strategies.
The forward-looking information and statements contained herein are based on certain factors and assumptions, certain of which appear proximate to the applicable forward-looking information and statements contained herein. 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 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 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 a number of provinces; the risk of adverse changes in economic and financial conditions in Canada and globally; the risk of increased competition from other retailers; 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 31, 2011. The forward-looking information and statements contained in this News Release represent the Company's views only as of the date hereof. Forward-looking information and statements contained in this News Release about prospective results of operations, financial position or cash flows that are based upon assumptions about future economic conditions and courses of action are presented for the purpose of assisting the Company's shareholders in understanding management's current views regarding those future outcomes and may not be appropriate for other purposes. 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 first quarter of 2012 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 Canadian GAAP. However, the Q1/2012 Management's Discussion and Analysis accessible through the foregoing link contains references to non-GAAP financial measures, such as operating margin, EBITDA (earnings before finance expenses, income taxes and depreciation and amortization), EBITDA margin and cash interest expense. Non-GAAP financial measures do not have standardized meanings prescribed by GAAP and, therefore, may not be comparable to other reporting issuers.
These non-GAAP financial measures have been included in the Q1/2012 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-GAAP financial measures assist in identifying underlying operating trends.
These non-GAAP financial measures, particularly EBITDA and EBITDA margin, are also common measures used by investors, financial analysts and rating agencies. These groups may use EBITDA, EBITDA margin and other non-GAAP financial measures to value the Company and assess the Company's ability to service its debt.
For further information:
Director, Communications & Corporate Affairs
(416) 490-2892, or
(416) 493-1220, ext. 5500
(416) 493-1220, ext. 5678