Shoppers Drug Mart Corporation Reports Second Quarter Results - Continued Growth in Sales and Net Earnings Per Share
Jul 19, 2012
TORONTO, July 19, 2012 /CNW/ - Shoppers Drug Mart Corporation (TSX: SC) today announced its financial results for the second quarter ended June 16, 2012.
Second Quarter Year-Over-Year Highlights
- Sales increase of 2.6% to $2.457 billion
- Same-store increase of 2.2%
- Pharmacy sales increase of 1.5% to $1.172 billion
- Same-store increase of 0.8%
- Retail prescription count increase of 4.2%
- Same-store increase of 3.8%
- Front store sales increase of 3.6% to $1.285 billion
- Same-store increase of 3.4%
- Net earnings per share of $0.70, an increase of 2.9%
- Adjusted net earnings per share of $0.71, an increase of 4.4%
- Repurchased 2,303,300 common shares at an aggregate cost of $96 million
- Sales increase of 2.3% to $4.851 billion
- Same-store increase of 1.9%
- Pharmacy sales increase of 1.5% to $2.340 billion
- Same-store increase of 1.0%
- Retail prescription count increase of 3.6%
- Same-store increase of 3.2%
- Front store sales increase of 3.1% to $2.511 billion
- Same-store increase of 2.7%
- Net earnings per share of $1.26, an increase of 3.3%
- Adjusted net earnings per share of $1.28, an increase of 4.9%
- Repurchased 4,123,000 common shares at an aggregate cost of $171 million
Second Quarter Results (12 Weeks)
Second quarter sales were $2.457 billion, an increase of 2.6% over the same period last year, driven by modest sales growth in pharmacy and strong results in the front of the store where the Company experienced sales gains in all regions of the country. On a same-store basis, sales increased 2.2% during the quarter.
Pharmacy sales were $1.172 billion in the second quarter, an increase of 1.5% compared to the same period last year, as solid growth in the number of prescriptions filled at retail, combined with strong sales growth in the Company's MediSystem Technologies and Specialty Health Network businesses, continues to be partially offset by a reduction in average prescription value. On a same-store basis, pharmacy sales increased 0.8% during the quarter. During the second quarter of 2012, the number of prescriptions dispensed at retail increased 4.2% compared to the same period last year and was up 3.8% on a same-store basis. The decrease in average prescription value can be largely attributed to further reductions 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 58.6% of prescriptions dispensed in the second quarter of 2012 compared to 56.9% in the same period last year. In the second quarter of 2012, prescription sales accounted for 47.7% of the Company's sales mix compared to 48.2% in the same quarter of last year.
Front store sales were $1.285 billion in the second quarter, an increase of 3.6% compared to the same period last year, led by strong growth in cosmetics and in food and confection. The Company's store network development program, which resulted in a 4.2% increase in drug store selling space compared to a year ago, continues to have a positive effect on sales growth, particularly in the front of the store. Front store sales growth was also driven by effective marketing campaigns and impactful promotions, along with solid program execution at store level. On a same-store basis, front store sales increased 3.4% during the quarter.
Second quarter net earnings, inclusive of a charge of $5 million (pre-tax) from the closure of two Murale stores, were $146 million compared to $148 million in the same period last year. On a fully diluted basis, net earnings per share were 70 cents in the second quarter of 2012 compared to 68 cents in the same period last year, an increase of 2.9%. Excluding the impact of this charge, adjusted net earnings for the second quarter of 2012 were $149 million or 71 cents per fully diluted share, an increase of 4.4%. Strong sales growth, combined with a disciplined approach to margin management, resulted in a 3.4% increase in gross profit dollars compared to the second quarter of last year. Operating and administrative expenses, including depreciation and amortization expense, increased 5.7% compared to the same period last year. Excluding the impact of the aforementioned charge of $5 million from the closure of two Murale stores, adjusted operating and administrative expenses were up 5.0% year-over-year, driven largely by higher store-level expenses, primarily occupancy, wages and benefits related to network growth and expansion initiatives, along with increased Associate earnings. Other factors that positively impacted net earnings for the second 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 second quarter of 2012, as there were 3.7% fewer fully diluted weighted average shares outstanding 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. This performance speaks to the strength of our value proposition in what remains a challenging economic environment. It is also a testament to the quality of our people, including our Associate-owners and their teams at store level, as they continue to execute on our strategic priorities and initiatives in order to mitigate the impact of regulatory reforms on our business."
First Half Results (24 Weeks)
First half sales were $4.851 billion, an increase of 2.3% over the same period last year, with pharmacy sales up 1.5% and front store sales up 3.1%. On a same-store basis, first half sales increased 1.9%, with pharmacy sales up 1.0% and front store sales up 2.7%. During the first half of 2012, the number of prescriptions dispensed at retail increased 3.6% compared to the same period last year and was up 3.2% on a same-store basis. Generic molecules represented 58.1% of prescriptions dispensed in the first half of 2012 compared to 56.7% in the same period last year. In the first half of 2012, prescription sales accounted for 48.2% of the Company's sales mix compared to 48.6% in the first half of last year.
First half net earnings, inclusive of the charge of $5 million (pre-tax) from the closure of two Murale stores, were $265 million, essentially flat to the comparative prior year period. On a fully-diluted basis, net earnings per share were $1.26 in the first half of 2012 compared to $1.22 in the same period last year. Excluding the impact of this charge, adjusted net earnings for the first half of 2012 were $269 million or $1.28 per fully diluted share, an increase of 4.9%.
Store Network Development
During the second quarter, 15 drug stores were opened or acquired, seven of which were relocations, and the Company completed two major drug store expansions. In addition to this activity, three existing drug stores were remodeled, converting them to smaller prototype formats, and two Murale stores were closed. At quarter-end, there were 1,340 stores in the system, comprised of 1,271 drug stores (1,215 Shoppers Drug Mart/Pharmaprix stores and 56 Shoppers Simply Pharmacy/Pharmaprix Simplement Santé stores), 63 Shoppers Home Health Care stores and six Murale stores. Retail selling space was approximately 13.5 million square feet at the end of the second quarter of 2012, an increase of 4.0% 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 October 15, 2012 to shareholders of record as of the close of business on September 28, 2012.
Normal Course Issuer Bid Program
During the second quarter of 2012, the Company repurchased 2,303,300 common shares under its normal course issuer bid program at an aggregate cost of $96 million, representing an average repurchase price of $41.64 per common share. Year-to-date, the Company has repurchased 4,123,000 common shares under its normal course issuer bid program at an aggregate cost of $171 million, representing an average repurchase price of $41.43 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 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 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 August 2, 2012. The call playback can be accessed after 5:00 p.m. (Eastern Daylight Time) on Thursday, July 19, 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 1102811.
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 1,215 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 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 and for the 12 week period ended March 24, 2012. 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 second 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 Q2/2012 Management's Discussion and Analysis accessible through the foregoing link contains references to non-GAAP financial measures such as adjusted operating and administrative expenses, 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-GAAP financial measures do not have standardized meanings prescribed by GAAP and, therefore, may not be comparable to similarly titled measures presented by other reporting issuers.
These non-GAAP financial measures have been included in the Q2/2012 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.
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Vice President, Communications & Corporate Affairs