Shoppers Drug Mart Corporation Reports Strong Fourth Quarter Results
- ANNUAL DIVIDEND INCREASED BY 7.5% TO $1.14 PER SHARE
- RENEWAL OF SHARE REPURCHASE PROGRAM
TORONTO, Feb. 7, 2013 /CNW/ - Shoppers Drug Mart Corporation (TSX: SC) today announced its unaudited financial results for the fourth quarter and fiscal year ended December 29, 2012.
Fourth Quarter Year-Over-Year Highlights
- Sales increase of 4.4% to $2.722 billion
- Same-store increase of 2.7%
- Pharmacy sales increase of 3.7% to $1.221 billion
- Same-store increase of 2.1%
- Retail prescription count increase of 8.3%
- Same-store increase of 6.1%
- Front store sales increase of 5.0% to $1.501 billion
- Same-store increase of 3.2%
- Net earnings per share of $0.85, an increase of 3.7%
Fiscal 2012 Highlights
- Sales increase of 3.1% to $10.782 billion
- Same-store increase of 2.2%
- Pharmacy sales increase of 2.1% to $5.101 billion
- Same-store increase of 1.2%
- Retail prescription count increase of 5.4%
- Same-store increase of 4.5%
- Front store sales increase of 4.0% to $5.681 billion
- Same-store increase of 3.1%
- Net earnings per share of $2.92, an increase of 2.8%
- Adjusted net earnings per share of $2.94, an increase of 4.3%
- Declared four quarterly dividends of 26.5 cents per common share
- Repurchased 7,949,400 common shares at an aggregate cost of $330 million
Fourth Quarter Results (12 Weeks)
Fourth quarter sales were $2.722 billion, an increase of 4.4% over the same period of the prior year, driven by strong volume growth in pharmacy and continued sales and market share gains in the front of the store. On a same-store basis, sales increased 2.7% during the quarter.
Pharmacy sales were $1.221 billion in the fourth quarter, an increase of 3.7% compared to the same period of the prior year, as strong growth in the number of prescriptions filled at retail, combined with sales gains in the Company's long-term care and specialty pharmacy business units, was partially offset by a further reduction in average prescription value. On a same-store basis, pharmacy sales increased 2.1% during the quarter. During the fourth quarter of 2012, the number of prescriptions dispensed at retail increased 8.3% compared to the same period of the prior year and was up 6.1% on a same-store basis. Pharmacy volume growth was particularly strong in Ontario, driven by the successful implementation and acceptance of a program to waive the two dollar co-pay on eligible prescriptions for seniors, and in western Canada where the Company completed a number of acquisitions in the second half of the year. Year-over-year, average prescription value at retail declined a further 6.0 % during the fourth quarter of 2012, largely the result of further reductions in generic prescription reimbursement rates due to recently implemented and ongoing drug system reform initiatives in most provincial jurisdictions, along with increasing generic prescription utilization rates. Generic molecules comprised 60.2% of prescriptions dispensed in the fourth quarter of 2012 compared to 57.1% in the same period of the prior year. In the fourth quarter of 2012, pharmacy sales accounted for 44.8% of the Company's sales mix compared to 45.2% in the same quarter of the prior year.
Front store sales were $1.501 billion in the fourth quarter, an increase of 5.0% compared to the same period of the prior year, led by strong growth in over-the-counter medications, cosmetics and food and confection. The Company's store network development program, which has resulted in a 3.6% increase in drug store selling space compared to a year ago, continues to have a positive impact on sales growth, particularly in the front of the store. Front store sales growth was also aided by effective seasonal marketing and promotional campaigns, a strong cough, cold and flu season, and solid program execution at store level. On a same-store basis, front store sales increased 3.2% during the fourth quarter of 2012.
Fourth quarter net earnings were $175 million compared to net earnings of $176 million in the same period of the prior year. On a fully-diluted basis, net earnings per share were 85 cents in the fourth quarter of 2012 compared to 82 cents per share in the same period of the prior year, an increase of 3.7%. Operating income was $250 million in the fourth quarter of 2012 compared to $256 million in the same period of the prior year, as strong sales growth and a continued focus on cost reduction, productivity and efficiency initiatives in comparable stores was offset by further downward pressure on pharmacy margins and higher operating expenses related to the Company's network growth and expansion initiatives, along with increased Associate earnings. Other factors that positively impacted net earnings for the fourth 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 fourth quarter of 2012, as there were 4.2% fewer fully-diluted shares outstanding (on a weighted average basis) compared to the fourth quarter of 2011.
Commenting on the results, Domenic Pilla , President and CEO stated, "We are pleased with our fourth quarter and full year results. In spite of the persistent regulatory headwinds that we face as an industry and a Company, we remain encouraged by our underlying operating results and financial performance. Clearly our brand and our value proposition, which is grounded upon the pillars of health, beauty and convenience, continue to resonate with our customers and patients in the communities we serve from coast to coast. 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 2012."
Fiscal 2012 Results (52 Weeks)
Sales in 2012 were $10.782 billion compared to $10.459 billion in 2011, an increase of $323 million or 3.1%, driven by strong volume growth in retail pharmacy, continued sales and market share gains in the front of the store and improved performance in the Company's complementary health care businesses. Increased activity on the acquisition front, combined with 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 2.2% in 2012.
Pharmacy sales were $5.101 billion in 2012 compared to $4.997 billion in 2011, an increase of $104 million or 2.1%, as strong growth in the number of prescriptions filled at retail, combined with sales gains in the Company's MediSystem Technologies and Specialty Health Network businesses, was largely offset by a further decline in average prescription value. On a same-store basis, pharmacy sales increased 1.2% during the year. During 2012, the number of prescriptions dispensed at retail increased 5.4% over the prior year and was up 4.5% on a same-store basis. Pharmacy volume growth was strongest in western Canada, driven in part by the acquisition, in August, of 19 drug stores and three long-term care pharmacies from Paragon Pharmacies Limited, and in Ontario where the Company increased its market share after the successful roll-out and implementation of a program to waive the two dollar co-pay on eligible prescriptions for seniors. Year-over-year, average prescription value at retail declined by a further 4.3% in 2012, a decrease that can be largely attributed to further reductions in generic prescription reimbursement rates as a result of recently implemented and ongoing drug system reform initiatives in most provincial jurisdictions, combined with greater generic prescription utilization rates. The Company's decision to waive the two dollar co-pay on eligible prescriptions for seniors in the Ontario market also contributed to the year-over-year decrease in average prescription value. Generic molecules comprised 59.2% of prescriptions dispensed in 2012 compared to 56.9% in the prior year. In 2012, pharmacy sales accounted for 47.3% of the Company's sales mix compared to 47.8% in the prior year.
Front store sales were $5.681 billion in 2012 compared to $5.462 billion in 2011, an increase of $219 million or 4.0%, with the Company posting sales gains in all core categories, led by cosmetics, over-the-counter medications and food and confection. On a same-store basis, front store sales increased 3.1% in 2012. In addition to square footage growth, effective marketing campaigns, impactful promotions and enhanced seasonal programs established positive sales momentum that drove sustained growth and market share gains in the front of the store throughout the course of the year.
Net earnings in 2012 were $608 million compared to $614 million in 2011. Net earnings for 2012 are inclusive of a third quarter restructuring charge of $13 million (pre-tax) stemming primarily from the rationalization and realignment of the Company's central office functions, along with an offsetting gain on disposal of $13 million (pre-tax) in respect of a sale-leaseback transaction involving certain of the Company's retail properties. In addition to these items, net earnings for 2012 also include 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 2012 were $612 million or $2.94 per fully-diluted share compared to adjusted net earnings of $611 million or $2.82 per fully-diluted share in 2011. Adjusted net earnings for 2011 exclude the impact of a third quarter gain on disposal of $3 million (pre-tax), which was also in respect of a sale-leaseback transaction involving certain of the Company's retail properties. During 2012, strong top-line growth, particularly in the front of the store, combined with a continued focus on promotional effectiveness and margin enhancement initiatives, served to offset further downward pressure on pharmacy margins resulting in a year-over-year increase in gross profit dollars of 3.2%. In 2012, operating and administrative expenses, including depreciation and amortization expense but excluding the items noted above, were up 4.8% over the prior year, driven in part by higher store-level expenses related to network growth and expansion initiatives, higher marketing expenses and increased Associate earnings. Year-over-year growth in depreciation and amortization expense, after excluding the impact of the sale-leaseback transactions noted above, can also be attributed to the Company's network growth and expansion initiatives, along with additional investments in supporting infrastructure. Other factors that positively impacted net earnings in 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 earnings per share during 2012, as there were 3.7% fewer fully-diluted shares outstanding (on a weighted average basis) compared to 2011.
Store Network Development
During the fourth quarter, the Company opened four new drug stores, all of which were relocations, and completed two major drug store expansions. The Company also acquired four drug stores during the quarter, two of which were amalgamated with existing stores. In addition to this activity, two drug stores were converted to smaller prototype formats and one smaller drug store was closed. The Company also closed one Shoppers Home Health Care store during the quarter. For the fiscal year ended December 29, 2012, the Company opened 41 new drug stores, 23 of which were relocations, and completed 12 major drug store expansions. The Company also acquired 33 drug stores during the year, eight of which were amalgamated with existing stores. In addition to this activity, 15 drug stores were converted to smaller prototype formats and five smaller drug stores were consolidated or closed. The Company also closed two Murale stores and one Shoppers Home Health Care store during the year. At the end of 2012, there were 1,363 stores in the system, comprised of 1,295 drug stores (1,240 Shoppers Drug Mart/Pharmaprix stores and 55 Shoppers Simply Pharmacy/Pharmaprix Simplement Santé stores), 62 Shoppers Home Health Care stores and six Murale stores. During 2012, the selling square footage of the retail store network increased by 3.4% to 13.7 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 15, 2013 to shareholders of record as of the close of business on March 28, 2013. This represents an increase in the Company's quarterly dividend payments of 7.5%, resulting in an annualized dividend of $1.14 per common share.
Normal Course Issuer Bid Program
During the fourth quarter of 2012, the Company repurchased 1,623,500 common shares under its normal course issuer bid program at an aggregate cost of $68 million, representing an average repurchase price of $41.66 per common share. For the fiscal year ended December 29, 2012, the Company has repurchased 7,949,400 common shares under its normal course issuer bid program at an aggregate cost of $330 million, representing an average repurchase price of $41.52 per common share. All repurchased common shares were subsequently cancelled. The Company's current normal course issuer bid program will terminate on February 14, 2013.
The Company also announced today that its Board of Directors has approved the renewal of its normal course issuer bid program and has authorized the purchase of up to 10,200,000 of its common shares, representing approximately 5.0% of the 203,911,788 common shares currently outstanding, by way of normal course purchases effected through the facilities of the Toronto Stock Exchange (the "TSX"). Under its current normal course issuer bid program that expires February 14, 2013, the Company has repurchased 8,308,900 common shares at an aggregate cost of $346 million, representing an average repurchase price of $41.60 per common share. 8,168,900 of the repurchased common shares were subsequently cancelled, with the remaining 140,000 repurchased common shares expected to be cancelled on February 28, 2013. Subject to approval of the TSX, it is anticipated that purchases under the new program may commence on February 15, 2013 and will terminate on February 14, 2014, or on such earlier date as the Company may complete its purchases pursuant to a Notice of Intention to be filed with the TSX. Purchases will be made by the Company in accordance with the requirements of the TSX and the price which the Company will pay for any such common shares will be the market price of any such common shares at the time of acquisition, or such other price as may be permitted by the TSX. In connection with the normal course issuer bid program, the Company intends to enter into an automatic purchase plan with its designated broker to allow for purchases of its common shares during certain pre-determined black-out periods, subject to certain parameters as to price and number of shares. Outside of these pre-determined black-out periods, shares will be repurchased in accordance with management's discretion, subject to applicable law. For purposes of the TSX rules, a maximum of 146,845 common shares may be purchased by the Company on any one day under the bid, except where purchases are made in accordance with the "block purchase exception" of the TSX rules. Common shares purchased by the Company will be cancelled.
Commenting on the dividend increase and the renewal of the share repurchase program, Brad Lukow , Executive Vice President and Chief Financial Officer stated, "The Board's decision to increase the dividend and renew the share repurchase program reinforces the Company's commitment to return excess cash to shareholders. It is a testament to the continued strength of our free cash flow generation capabilities and our ability to support both growth initiatives and shareholder distributions in order to enhance long-term shareholder value."
Fiscal 2013 Outlook (52 Weeks Ending December 28, 2013)
The Company expects total sales to increase by between 3.0% and 4.0% in 2013. This expectation is supported by anticipated sales growth of between 4.0% and 5.0% in pharmacy, an assumption that is underpinned by increased acquisition activity and above market prescription count growth. On a same-store basis, the Company expects pharmacy sales growth of between 1.5% and 2.5% in 2013, as it will be building on strong comparable store pharmacy sales growth from last year, particularly in the second half of 2013. In the front of the store, the Company expects to generate sales growth of between 2.5% and 3.5%, which reflects a smaller network development and expansion program and, as well, takes into consideration the anticipated impact of new market entrants. On a same-store basis, the Company expects front store sales growth of between 2.0% and 2.5% in 2013. In pharmacy, it is expected that above market prescription count growth will be partially offset by a further reduction in average prescription value, with the decline in average prescription value being largely attributable to continued reductions in generic prescription reimbursement rates as a result of recently implemented or announced drug system reform initiatives in most provincial jurisdictions. Furthermore, it is anticipated that increasing generic prescription utilization rates will also serve as a contributing factor to the decline in average prescription value. The anticipated further decline in average prescription value will continue to put downward pressure on pharmacy margins, resulting in an increased focus on cost and efficiency initiatives not only in the dispensary, but across the entire spectrum of the Company's operations.
In fiscal 2013, the Company plans to allocate approximately $275 million to its base capital expenditure program, with approximately 70% of this amount to be invested in the store network. In addition to renovations and enhancements to existing stores, the Company's store network investment program for fiscal 2013 includes the addition of between 30 and 35 new drug stores, approximately half of which will be relocations, and the completion of between 15 and 20 major drug store expansions. This activity should result in an increase in retail selling square footage of approximately 3.0%. The balance of the Company's capital expenditures will be directed to investments in supporting infrastructure, including information technology and supply chain. Incremental to its base capital expenditure plans, the Company will continue to pursue attractive opportunities in the marketplace to acquire drug stores and prescription files.
2012 Annual Report
The Company's audited consolidated financial statements and the notes thereto for the year ended December 29, 2012 will be available on or before March 27, 2013. Management's Discussion and Analysis for the year ended December 29, 2012, including further discussion and analysis of fourth quarter events or items that affected results of operations, financial position and cash flows, will also be available on or before March 27, 2013. Both documents will be contained in the Company's 2012 Annual Report and will be available in the Investor Relations section of the Company's website at www.shoppersdrugmart.ca, or on the Canadian Securities Administrators' website 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 and its outlook for fiscal 2013. 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 Standard Time) on February 21, 2013. The call playback can be accessed after 5:00 p.m. (Eastern Standard Time) on Thursday, February 7, 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 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 more than 1,240 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 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, 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 31, 2011, for the 12 week period ended March 24, 2012, for the 12 and 24 week periods ended June 16, 2012 and for the 16 and 40 week periods ended October 6, 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 fourth quarter of 2012 unaudited condensed consolidated financial statements, please access the following link:
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