Shoppers Drug Mart's Q3 adjusted net earnings grew 5% to C$170M as sales climbed 2.1% to C$3.11B, driven by growth in prescriptions, front of store; same-store sales rose 1.5%
November 9, 2011
(Shoppers Drug Mart)
– Shoppers Drug Mart Corporation (TSX: SC) today announced its financial results for the third quarter ended October 8, 2011.
Third Quarter Results (16 Weeks)
Third quarter sales were $3.111 billion, an increase of 2.1% over the same period last year, driven by sales growth in both prescriptions and in the front of the store. On a same-store basis, total sales increased 1.5% during the quarter.
Prescription sales were $1.514 billion in the third quarter, an increase of 1.5% compared to the same period last year. Growth in the number of prescriptions filled remained strong, however this volume growth continues to be largely offset by a reduction in average prescription value. On a same-store basis, prescription sales increased 1.1% during the quarter. During the third quarter of 2011, total prescription counts increased 3.6% compared to the same period last year and were up 3.4% on a same-store basis. The decrease in average prescription value can be 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, combined with increasing generic prescription utilization rates. Generic molecules represented 56.9% of prescriptions dispensed in the third quarter of 2011 compared to 54.8% of prescriptions dispensed in the same period last year. In the third quarter of 2011, prescription sales accounted for 48.7% of the Company’s sales mix compared to 49.0% of the Company’s sales mix in the third quarter of last year.
Front store sales were $1.596 billion in the third quarter, an increase of 2.6% compared to the same period last year, led by strength in cosmetics, food and confection and other convenience categories. On a same-store basis, front store sales increased 1.8% during the quarter.
Third quarter net earnings, inclusive of a gain on disposal of $3 million (pre-tax) in respect of a sale-leaseback transaction involving certain of the Company’s retail properties, were $172 million or 80 cents per share. Excluding the impact of this gain, adjusted net earnings for the third quarter of 2011 were $170 million or 79 cents per share, an increase of 5.0% compared to adjusted net earnings of $162 million or 74 cents per share in the third quarter of 2010. Adjusted net earnings for the prior year exclude the impact of a charge of 3 cents per share to settle a long-standing legal dispute related to a commercial arrangement with one of the Company’s ancillary businesses. Solid performance in the front of the store was partially offset by continued downward pressure on sales and margin dollars in the dispensary as a result of drug system reform initiatives implemented in a number of provinces. These results also reflect the benefits from cost reduction, productivity and efficiency initiatives in comparable stores, which served to partially offset higher operating expenses at store level associated with the Company’s network growth and expansion initiatives, principally occupancy, wages and benefits, along with increased Associate earnings. Net earnings for the third quarter of 2011 also benefitted from a reduction in the Company’s effective income tax rate.
Commenting on the results, Domenic Pilla, President and CEO stated, “We are encouraged by the Company’s performance in the third quarter and results thus far in fiscal 2011. This remains a difficult period of transition as we continue to work through government reform initiatives in a number of provinces and the resultant funding and reimbursement pressures this has placed on our pharmacy business. Together with our Associate-owners and their teams at store level, we are confident that our commitment to patient care and customer service, along with our merchandising strategies and promotional campaigns, have us well-positioned entering the final quarter of the year.”
Year-to-date Results (40 weeks)
Sales for the first three quarters of 2011 were $7.852 billion, an increase of 2.1% over the same period last year, with prescription sales up 0.2% and front store sales up 3.9%. On a same-store basis, year-to-date sales increased 1.4%, with prescription sales up 0.1% and front store sales up 2.8%. During the first three quarters of 2011, prescription counts increased 3.8% on both a total and a same-store basis when compared to the same period last year. Generic molecules represented 56.3% of prescriptions dispensed in the first three quarters of 2011 compared to 53.3% of prescriptions dispensed in the same period last year. Prescription sales accounted for 48.6% of the Company’s sales mix compared to 49.6% of the Company’s sales mix in the first three quarters of last year.
Net earnings for the first three quarters of 2011, inclusive of the aforementioned third quarter gain on disposal of $3 million (pre-tax), were $438 million or $2.02 per share. Excluding the impact of this gain, adjusted net earnings for the first three quarters of 2011 were $435 million or $2.01 per share, an increase of 3.3% compared to adjusted net earnings of $422 million or $1.94 per share in the first three quarters of 2010. In addition to excluding the impact of the aforementioned legal settlement charge of 3 cents per share incurred in the third quarter of 2010, adjusted net earnings for the first three quarters of last year also exclude the impact of a first quarter gain on disposal of 4 cents per share in respect of a sale-leaseback transaction involving certain of the Company’s retail properties.
Store Network Development
During the third quarter of 2011, 15 drug stores were opened including three acquired outpatient hospital pharmacies and six relocations, and one smaller drug store was closed. The Company also completed eight major drug store expansions during the quarter. In addition to this activity, 18 existing drug stores were remodeled, converting them to smaller prototype formats. At quarter-end, there were 1,328 stores in the system, comprised of 1,257 drug stores (1,198 Shoppers Drug Mart/Pharmaprix stores and 59 Shoppers Simply Pharmacy/Pharmaprix Simplement Santé stores), 63 Shoppers Home Health Care stores and eight Murale stores. Retail selling space was approximately 13.2 million square feet at the end of the third quarter of 2011, an increase of 4.3% compared to a year ago.
The Company also announced today that its Board of Directors has declared a dividend of 25 cents per common share, payable January 13, 2012 to shareholders of record as of the close of business on December 30, 2011.
Normal Course Issuer Bid Program
During the third quarter of 2011, the Company repurchased 2,691,400 common shares under its normal course issuer bid program at an aggregate cost of $105 million, representing an average repurchase price of $38.92 per common share. All repurchased shares were subsequently cancelled.
The Company will hold an analyst call at 3:30 p.m. (Eastern Standard Time) today to discuss its third 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 1610464. 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 23, 2011. The call playback can be accessed after 5:00 p.m. (Eastern Standard Time) on Wednesday, November 9, 2011 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 8288634.
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 1,198 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 59 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 in Ontario and Alberta.
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; 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; 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; and the risk that events or series of events may cause business interruptions.
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 January 1, 2011, for the 12 week period ended March 26, 2011 and for the 12 and 24 week periods ended June 18, 2011. The forward-looking information and statements contained in this News Release represent the Company’s views only as of the date of this release. 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.