Driven by franchise network growth, sales and operating results improved in the fiscal 2011 first quarter at the Jean Coutu Group.


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Jean Coutu's retail network fuels 1Q gains

July 6th, 2010

LONGUEUIL, Quebec – Driven by franchise network growth, sales and operating results improved in the fiscal 2011 first quarter at the Jean Coutu Group.

The Canadian drug store operator said Tuesday that for the first quarter ended May 29, total revenue rose 3.8% to $642.9 million (Canadian) from $619.3 million a year earlier. The company attributed the gain to the market growth and expansion of its franchise store network.

Coutu's income consists of sales plus other revenue derived from franchising activities in Canada, with merchandise sales to franchisees through its distribution centers accounting for most of the company's sales.

During the first quarter, same-store sales in the retail network grew 2.9%, reflecting gains of 3.8% in the pharmacy and 1% in the front end, according to Coutu.

Meanwhile, total retail sales in the network climbed 5.3% in the quarter to $930.4 million from $883.9 million a year ago. Revenue was up 5.8% in the pharmacy and 4.1% in the front end. Coutu noted that first-quarter sales of nonprescription drugs, which represented 9% of total retail sales, rose by 2.2%, compared with a 7.2% increase in the prior-year period.

Operating income before amortization (OIBA) increased 8.3% to $70.1 million for the first quarter from $64.7 million a year ago. Coutu said the increase stems mainly from a strong operational performance in franchising activities and from its Pro Doc subsidiary.

On the earnings side, first-quarter 2011 net income came in at $43.2 million, or 18 cents per share, up from $10.3 million, or 4 cents per share, in the 2010 first quarter. Earnings before specific items and share of loss in Rite Aid Corp., in which Coutu holds an ownership stake, amounted to $43.5 million, or 18 cents per share, in the 2011 quarter compared with $38.5 million, or 16 cents per share, in the 2010 period.

Coutu reported that no share of loss in Rite Aid was accounted in the company's earnings during the 2011 first quarter compared with $30.9 million, or 13 cents per share, a year ago. This was a noncash charge, the company said.

"We are satisfied with the results of the first quarter of fiscal 2011. The expansion of our network and the solid operating performance of our organization have allowed us to reach our objectives," François Coutu, Jean Coutu's president and chief executive officer, said in a statement.

In the first quarter, the franchise network saw nine store openings, including two relocations, according to Coutu. Also, eights stores were significantly renovated or expanded, and one store was closed. The company operates a network of 376 franchised stores in Quebec, New Brunswick and Ontario under the banners of PJC Jean Coutu, PJC Clinique, PJC Santé and PJC Santé Beauté.

Addressing the effect of governmental drug reforms, Coutu's management said it doesn't think reform in Ontario — which will reduce the price of generic drugs as well as the professional allowances paid to pharmacists by generic drug makers — will have a significant impact on the company's results due to the volume of business generated in that province.

However, Coutu reported, Quebec's minister of health announced on June 25 that as of this month, the price of generic drugs will generally be established at 25% of the price for the original equivalent, with the implementation of price cut slated to be postponed for four to eight weeks in order to consult interested parties. "If measures similar to those adopted in Ontario were to be implemented in Quebec, the company's consolidated results could be impacted," the pharmacy operator stated.

"As for the reduction in the price of generic drugs announced by the minister of health and social services of Quebec," François Coutu commented, "we will make representations for the company and the pharmacist owners affiliated with the PJC Jean Coutu network through the associations involved. We strongly believe that the government of Quebec must recognize that a reduction in the price of generic drugs must be adopted concurrently with measures in order to assist market participants with the transition to lower generic drug prices."

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