Shoppers Drug Mart Corporation Reports Third Quarter Results
TORONTO, Nov. 13, 2012 /CNW/ - Shoppers Drug Mart Corporation (TSX: SC) today announced its financial results for the third quarter ended October 6, 2012.
Third Quarter Year-Over-Year Highlights
- Sales increase of 3.2% to $3.209 billion
- Same-store increase of 2.3%
- Pharmacy sales increase of 1.7% to $1.540 billion
- Same-store increase of 0.9%
- Retail prescription count increase of 6.0%
- Same-store increase of 5.0%
- Front store sales increase of 4.6% to $1.669 billion
- Same-store increase of 3.6%
- Adjusted net earnings per share of $0.81, an increase of 2.5%
- Repurchased 2,202,900 common shares at an aggregate cost of $92 million
- Sales increase of 2.7% to $8.060 billion
- Same-store increase of 2.0%
- Pharmacy sales increase of 1.6% to $3.880 billion
- Same-store increase of 0.9%
- Retail prescription count increase of 4.6%
- Same-store increase of 3.9%
- Front store sales increase of 3.7% to $4.180 billion
- Same-store increase of 3.1%
- Net earnings per share of $2.07, an increase of 2.5%
- Adjusted net earnings per share of $2.09, an increase of 4.0%
- Repurchased 6,325,900 common shares at an aggregate cost of $262 million
Third Quarter Results (16 Weeks)
Third quarter sales were $3.209 billion, an increase of 3.2% over the same period last year, driven by strong volume growth in pharmacy and robust sales dollar growth in the front of the store. On a same-store basis, sales increased 2.3% during the quarter.
Pharmacy sales were $1.540 billion in the third quarter, an increase of 1.7% compared to the same period last year, as strong growth in the number of prescriptions filled at retail, combined with continued sales gains in the Company's MediSystem Technologies and Specialty Health Network businesses, was partially offset by a further reduction in average prescription value. On a same-store basis, pharmacy sales increased 0.9% during the quarter. During the third quarter of 2012, the number of prescriptions dispensed at retail increased 6.0% compared to the same period last year and was up 5.0% on a same-store basis. Pharmacy volume growth was driven in part by the acquisition, in August, of 19 drug stores in western Canada from Paragon Pharmacies Limited, as well as by the successful implementation and acceptance of a program in Ontario to waive the two dollar co-pay on prescriptions for seniors. 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 60.1% of prescriptions dispensed in the third quarter of 2012 compared to 56.9% in the same period last year. In the third quarter of 2012, pharmacy sales accounted for 48.0% of the Company's sales mix compared to 48.7% in the same quarter of last year.
Front store sales were $1.669 billion in the third quarter, an increase of 4.6% compared to the same period last year, led by strong growth in cosmetics, over-the-counter medications and food and confection. The Company's store network development program, which resulted in a 4.0% 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, including the Company's 50th anniversary celebration, an event which ran for 16 days in September. On a same-store basis, front store sales increased 3.6% during the quarter.
Third quarter net earnings were $168 million compared to $172 million in the same period last year. Net earnings for the third quarter of 2012 are inclusive of a restructuring charge of $13 million (pre-tax) stemming primarily from the rationalization 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. Net earnings for the third quarter of the prior year included a gain on disposal of $3 million (pre-tax), also in respect of a sale-lease back transaction involving certain of the Company's retail properties. On a fully diluted basis and excluding the items noted above, adjusted net earnings per share were 81 cents in the third quarter of 2012 compared to 79 cents in the same period last year, an increase of 2.5%. Strong sales growth and a continued focus on promotional effectiveness and margin enhancement initiatives resulted in a 3.6% increase in gross profit dollars compared to the third quarter of last year. Operating and administrative expenses, including depreciation and amortization expense but excluding the items noted above, were up 5.4% year-over-year driven in part by higher store-level expenses, primarily occupancy, wages and benefits related to network growth and expansion initiatives, along with increased Associate earnings. Year-over-year growth in the Company's depreciation and amortization expense, after excluding the impact of the sale-leaseback transactions noted above, can also be attributed to network growth and expansion initiatives, along with additional investments in supporting infrastructure and stepped-up activity on the acquisition front. Other factors that positively impacted net earnings for the third 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 third quarter of 2012, as there were 4.2% fewer fully diluted shares outstanding (on a weighted average basis) compared to the third quarter of last year.
Commenting on the quarter, Domenic Pilla, President and CEO stated, "We are pleased with our third quarter operating and financial results. This is a strong performance in the context of a challenging economic and competitive environment. And while headwinds remain on the regulatory front, we are encouraged by the early success of our pharmacy growth initiatives, along with the steps we have taken to further reduce costs and promote efficiencies. Looking ahead we are confident that, together with our Associate-owners and their teams at store-level, we have the right programs in place to build upon this momentum, deliver on our value proposition and enhance total shareholder returns."
Year-to-date Results (40 Weeks)
Sales for the first three quarters of 2012 were $8.060 billion, an increase of 2.7% over the same period last year, with pharmacy sales up 1.6% and front store sales up 3.7%. On a same-store basis, year-to-date sales increased 2.0%, with pharmacy sales up 0.9% and front store sales up 3.1%. During the first three quarters of 2012, the number of prescriptions dispensed at retail increased 4.6% compared to the same period last year and was up 3.9% on a same-store basis. Generic molecules represented 58.9% of prescriptions dispensed in the first three quarters of 2012 compared to 56.8% in the same period last year. In the first three quarters of 2012, prescription sales accounted for 48.1% of the Company's sales mix compared to 48.6% in the same period last year.
Net earnings for the first three quarters of 2012 were $433 million compared to $438 million in the same period last year. In addition to the restructuring charge of $13 million (pre-tax) and the offsetting gain on disposal of $13 million (pre-tax) noted above, net earnings for the first three quarters of 2012 also include a second quarter charge of $5 million (pre-tax) from the closure of two Murale stores. Net earnings for the first three quarters of the prior year are inclusive of the aforementioned gain on disposal of $3 million (pre-tax). On a fully-diluted basis and excluding the impact of these items, adjusted net earnings per share were $2.09 in the first three quarters of 2012 compared to $2.01 in the same period last year, an increase of 4.0%.
Store Network Development
During the third quarter, the Company opened 10 new drug stores, six of which were relocations, and completed five major drug store expansions. The Company also acquired 21 drug stores during the quarter, 19 of which were acquired from Paragon Pharmacies Limited. In addition to this activity, three existing drug stores were remodeled, converting them to smaller prototype formats, and two smaller drug stores were closed. The Company also relocated three Shoppers Home Health Care stores during the quarter. At quarter-end, there were 1,363 stores in the system, comprised of 1,294 drug stores (1,237 Shoppers Drug Mart/Pharmaprix stores and 57 Shoppers Simply Pharmacy/Pharmaprix Simplement Santé stores), 63 Shoppers Home Health Care stores and six Murale stores. Retail selling space was approximately 13.7 million square feet at the end of the third quarter of 2012, an increase of 3.9% 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 January 15, 2013 to shareholders of record as of the close of business on December 31, 2012.
Normal Course Issuer Bid Program
During the third quarter of 2012, the Company repurchased 2,202,900 common shares under its normal course issuer bid program at an aggregate cost of $92 million, representing an average repurchase price of $41.58 per common share. Year-to-date, the Company has repurchased 6,325,900 common shares under its normal course issuer bid program at an aggregate cost of $262 million, representing an average repurchase price of $41.48 per common share. All repurchased shares were subsequently cancelled.
The Company will hold an analyst call at 3:00 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 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 November 27, 2012. The call playback can be accessed after 5:00 p.m. (Eastern Standard Time) on Tuesday, November 13, 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 1,237 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 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, for the 12 week period ended March 24, 2012 and for the 12 and 24 week periods ended June 16, 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 third 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 Q3/2012 Management's Discussion and Analysis accessible through the foregoing link contains references to non-GAAP financial measures such as adjusted operating and administrative expenses, adjusted depreciation and amortization expense, adjusted operating income, 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 Q3/2012 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, adjusted EBITDA, EBITDA margin and adjusted EBITDA margin, are also common measures used by investors, financial analysts and rating agencies. These groups may use EBITDA, adjusted EBITDA, EBITDA margin, adjusted EBITDA margin and other non-GAAP financial measures to value the Company and assess the Company's ability to service its debt.
SOURCE Shoppers Drug Mart Corporation
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