Shoppers Drug Mart pursuing acquisition opportunities, gearing up for rise in rivals

Q4 sales up 4.4%

TORONTO — Despite continuing to face regulatory headwinds in the Canadian market, executives at Canadian pharmacy retailer Shoppers Drug Mart were “pleased” with fourth-quarter results and indicated that the company will continue to pursue acquisition opportunities.

“We have continued to be active throughout the back half of 2012 and that continues into the first quarter of the current year. So, based on what we are seeing in terms of opportunities, we are anticipating this to be a fairly robust year from an acquisition standpoint,” Brad Lukow, EVP and CFO of Shoppers Drug Mart told analysts during Thursday’s conference call.

As previously reported, the retailer acquired 19 drug stores and three long-term care pharmacies from Paragon Pharmacies Ltd., in August. This acquisition helped fuel pharmacy volume growth in western Canada, the company stated.

Meanwhile, the Canadian market has been a hot topic given the rise in the competitive retail landscape, and this clearly was top of mind for several analysts during Thursday’s call. Given the upcoming entrance of Target into the Canadian market, Domenic Pilla, president and CEO, told analysts that mass cosmetics, health and beauty aids are among those categories that could face the greatest impact.

“We are definitely cognizant of that and have put plans together. We think we have a terrific tool chest of opportunities to offset that [competition] but they will have an impact on the market, especially when you think of reciprocal effect of the decline of Zeller’s significantly in 2012 and the uptake of Target in the market,” said Pilla. He noted that the company will leverage its loyalty database to develop customer-centric, targeted and relevant offers to shoppers.

In addition, the company will continue to expand its beauty offerings based on the success of the pilot of its enhanced beauty boutique.

“We did have a pilot of our enhanced beauty offer. We are extremely pleased by the performance of that store. … Going into 2013, we are very pleased with the result and we will definitely continue our expansion and we will continue to look at learnings from that pilot store and how we implement that into the rest of our network,” Pilla said. As of the end of year, the company operated 325 beauty boutiques.

Front-store sales in the quarter were C$1.5 billion, up 5%, led by strong growth in OTC, cosmetics, food and confection, the company stated. Same-store front-end sales rose 3.2% during the quarter.

In pharmacy, sales for the quarter were C$1.22 billion, up 3.7% compared with the year-ago period. Pharmacy same-store sales rose 2.1%.

While the company declined to disclose specific numbers, executives did say they were “extremely pleased” with the performance of its pharmacy team in administering flu shots during the quarter in light of the new regulations in Ontario. The company has more than 1,000 pharmacists in Ontario trained in administering flu vaccinations.

“We are, of course, offering flu vaccinations in other parts of Canada as well and, given the size of our network, we are extremely pleased with the performance of our program around vaccinations and not just flu shots but overall inoculations as well, including travel vaccines,” Pilla said.

As previously reported, the Ontario government recently expanded the scope of pharmacist's practice to include administering the flu shot. Under the new regulations, pharmacists in Ontario can now, as of Oct. 15, administer flu immunization by injection or inhalation to a patient 5 years of age or older.

Fourth-quarter sales were C$2.72 billion, up 4.4% compared with the year ago, driven by strong volume growth in pharmacy and continued sales and market share gains in the front of the store, the retailer stated. Same-store sales rose 2.7%.

Net earnings were C$175 million compared with net earnings of C$176 million in the year-ago period. On a fully diluted basis, net earnings per share were 85 Canadian cents during the quarter compared with 82 Canadian cents per share in the year-ago period, an increase of 3.7%.

“We are pleased with our fourth quarter and full year results for 2012. In spite of the persistent regulatory headwinds that we face as an industry and as a company, we remain encouraged by our underlying operating and financial performance,” said Pilla. “Clearly, our brand and our strong value proposition, which is grounded upon the pillars of health, beauty and convenience, continue to resonate with our customers and patients in the communities that we serve.”

For fiscal 2012, sales were C$10.78 billion, up 3.1% compared with the year-ago period. On a same-store basis, sales rose 2.2%. Pharmacy sales for fiscal 2012 rose 2.1% to C$5.1 billion. Same-store pharmacy sales increased 1.2% during the year. Front-store sales totaled C$5.68 billion, up 4%, as same-store front-end sales climbed up 3.1% for the year.

Net earnings for fiscal 2012 were C$608 million compared with C$614 million in 2011. Net earnings per share were C$2.92, an increase of 2.8%. Adjusted net earnings per share totaled C$2.94, an increase of 4.3%.

In fiscal 2012, the company also declared four quarterly dividends of 26.5 Canadian cents per common share, and it repurchased 7,949,400 common shares at an aggregate cost of C$330 million.


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