Jean Coutu’s solid Q3 retail performance hampered by Pro Doc, Metro acquisition
Jean Coutu Group on Thursday shared its fiscal 2018 third-quarter results showing an uptick in retail performance even as the company’s generics manufacturer Pro Doc and its ongoing acquisition of Canadian grocer Metro brought down its operating income.
Retail sales from the Quebecois company’s network of 419 franchised stores — which include the PJC Jean Coutu, PJC Jean Coutu Santé and PJC Jean Coutu Santé Beauté — were $1.13 billion Canadian for the period ended Dec. 2, 2017 — up from the $1.09 billion Canadian in retail sales the company saw in Q3 2017. Total-store and same-store pharmacy sales both increased 4% — a slower rate than the year ago period. For the front end, total sales increased 2.5% and same-store sales grew 2.3%. In both pharmacy and front-end total- and same-store sales grew at a slower rate than in the previous period.
Year-to-date, though, the company is tracking ahead of where it was last year, with same-store sales up 4.7% in fiscal 2018 — more than the 2.6% growth it saw at this point in fiscal 2017. Same-store pharmacy sales have grown 6.2% so far year-to-date — more than three times the 1.9% growth posted at the same time last year. During the quarter, the company opened 3 PJC network stores, which included 2 relocations. Two stores were significantly renovated and one closed.
“Network retail sales increased significantly in the third quarter of fiscal 2018, despite a challenging regulatory environment and a highly competitive environment,” Jean Coutu president and CEO François Coutu said. “This growth demonstrates the effective implementation of our business plan. We intend to pursue the development of dynamic business strategies to ensure the evolution of our offer and contribute to the growth of retail sales.”
Despite solid retail performance, the company’s operating income before amortization, or OIBA, decreased $13.5 million Canadian to $66.4 million Canadian— down from the $79.9 million Canadian in revenue the company saw in the prior-year Q3. The company attributed the decrease to a lower contribution from its Pro Doc generics manufacturing subsidiary, as well as $8.5 million Canadian in expenses related to its acquisition of Canadian grocer Metro.
Pro Doc’s decreased revenue was attributed partially to higher professional allowances before a ceiling was reinstated through an agreement between the Ministry of Health and Social Services and the Association québécoise des pharmaciens propriétaires, and partially to a $5.5 million non-recurrent expense related to inventory that was the result of an agreement between the Canadian Generic Pharmaceutical Association and the Quebec government.
With regard to its Metro acquisition, Jean Coutu said it expects the transaction — which will see it pay $4.5 billion Canadian for the grocer — to close in the first half of 2018.
Sam’s Club closing stores in strategy realignment
Walmart will be closing several of its Sam’s Club stores, the retailer announced Thursday. The company is set to close 63 stores this year, with plans to convert as many as 12 of them to e-commerce fulfillment centers with the aim of speeding up its online order delivery.
According to company leadership, the closings — which will bring Sam’s Club’s store count to 597 clubs — are part of an effort to remain competitive.
“Transforming our business means managing our real estate portfolio and Walmart needs a strong fleet of Sam’s Clubs that are fit for the future,” said John Furner, president and CEO of Sam’s Club. “We know this is difficult news for our associates and we are working to place as many of them as possible at nearby locations. Our focus today has been on those associates and their communities, and communicating with them.”
Sam’s Club said that the first store to be converted into a fulfillment center will be in Memphis, Tenn. Walmart will be providing pay and resources to affected employees, as well as 60 days of pay and severance to those eligible. As part of the company’s Thursday announcement to raise wages and improve benefits, as well as offer bonuses to certain eligible employees, eligible Sam’s Club employees affected by the closings will be able to claim them, the company said.
The announcement of the closures and conversions came on the heels of the retirement of Sam’s Club’s senior vice president and GMM of consumables and health and wellness Jill Turner-Mitchael.
Walmart increases employee starting wage, expands parental leave
The nation’s largest private employer will increase the starting wage rate for its more than one million hourly associates in the United States to $11, and provide a one-time cash bonus for eligible associates ranging from $200 to up to $1,000. (Rival Target raised its minimum wage to $11 last fall.) The company said the changes partially motivated by anticipated savings from the new tax plan, which provides deep tax cuts to corporations.
The pay increase, which takes effect in the Feb. 17, 2018, pay cycle, is in addition to wage increases Walmart has already planned for many U.S. markets in the coming fiscal year.
The cash bonus will be provided to all eligible full and part-time hourly associates. The amount will be based on length of service. Associates with at least 20 years will qualify for $1,000.
This increase in wages will be approximately $300 million incremental to what was already included in next fiscal year’s plan. The one-time bonus represents an additional payment to associates of approximately $400 million in the current fiscal year, which ends Jan. 31, 2018. Walmart said a “discrete” one-time charge will be taken in the fourth quarter of the current year to account for the bonus.
Walmart is also expanding its parental and maternity leave policy, providing full-time hourly associates in the U.S. with 10 weeks of paid maternity leave and six weeks of paid parental leave. Salaried associates will also receive six weeks of paid parental leave.
The retailer will also provide financial assistance to associates adopting a child. The adoption benefit, available to both full-time hourly and salaried associates, will total $5,000 per child and may be used for expenses such as adoption agency fees, translation fees and legal or court costs.
“Today, we are building on investments we’ve been making in associates, in their wages and skills development,” said Doug McMillon, Walmart president and CEO. “We are early in the stages of assessing the opportunities tax reform creates for us to invest in our customers and associates and to further strengthen our business, all of which should benefit our shareholders. However, some guiding themes are clear and consistent with how we’ve been investing — lower prices for customers, better wages and training for associates and investments in the future of our company, including in technology. Tax reform gives us the opportunity to be more competitive globally and to accelerate plans for the U.S.”
Walmart said it is early in the process of assessing potential additional investments.
“That assessment will be done not only through the lens of associates, customers and shareholders, but also within Walmart’s financial framework of strong, efficient growth, consistent operating discipline and strategic capital allocation,” the company stated.