UPDATE: Shoppers Drug Mart sees boost in Q1 sales

TORONTO — Shoppers Drug Mart announced on Thursday that first quarter sales rose 3.8% thanks to strong volume in pharmacy and continued sales and market share gains at the front end. The company also indicated that it remains on the acquisition track and is "carefully" watching as Target bolsters its presence in Canada.

“We are pleased with our first quarter results. While the regulatory headwinds facing our industry have yet to subside, we continue to outperform the market. The collective commitment of our associate-owners and their teams at store level to provide the best in patient care and customer service is delivering above-market pharmacy volume growth and robust sales and market share gains in the front of the store,” said Domenic Pilla, president and CEO.

Sales for the quarter ended March 23 totaled Canadian $2.49 billion, up 3.8% compared with the year-ago period. Same-store sales rose 2.5%.

Net earnings were C$119 million, marginally higher than net earnings generated in the year-ago period. On a diluted basis, net earnings per share were 59 Canadian cents compared with 56 Canadian cents in the year-ago period.

Pharmacy sales climbed 3.3% to C$1.21 billion, and pharmacy same-store sales increased 1.6%. The company reported that pharmacy volume growth was particularly strong in Ontario, driven in part by the implementation of a program to waive the C$2 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. During the quarter, the company acquired four drug stores and one long-term care pharmacy.

“We were able to close five deals within the first quarter of 2013. So we were very pleased with the activity we’re seeing to date. The team is actively engaged throughout all parts of the country with a focus on Ontario and Western Canada with regard to acquisition opportunities. And so it is our intention and plan to continue with the pipeline of closing on acquisitions,” Bradley Lukow, EVP and CFO, told analysts. “… We are very targeted and disciplined around the economics of acquiring scripts.”

The retailer noted that year-over-year the average prescription value at retail declined 4.8% during the first quarter, largely due to further reductions in generic prescription reimbursement rates under the recently implemented and ongoing drug system reform initiatives in most provincial jurisdictions, along with rising generic prescription utilization rates.

At the front end, sales were C$1.28 billion, an increase of 4.3% compared with the year-ago period, led by strong growth in food and confection, cosmetics and OTC medications. Same-store front-end sales rose 3.3% during the quarter.

In recent months, Canada has seen increased competitive activity in retail. For example, Target Canada is disrupting the market with the recent openings of its first stores in Canada and its goal to open 124 stores across Canada throughout 2013. In light of this, one analyst inquired about the potential impact from Target.

“In the first quarter we didn’t have a large presence of Target … it is too early to tell given the number of stores they have opened. We are obviously watching it carefully and we are deploying programs that we designed last year in reaction to new entry but, at this stage, certainly in the first quarter, there is no impact [from] Target and too early to tell right now in terms of their impact,” said Pilla, who noted that store traffic at Shoppers Drug Mart is up 1.8% and basket size is up 3.2%.

When asked about the recent news that the Alberta government will reduce generic drug prices from 35% to 18% of brand name drug prices, effective May 1, as part of its Budget 2013 and asked whether other provinces may follow suit, Pilla told analysts, “There have been other provinces that have also announced their budgets since Alberta announced the level of 18% but we have not seen anybody follow that level in Canada so far. Of course, Alberta implementation is slated for May 1 and it is still unclear what the Alberta prices will be following that implementation.”


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