Citing robust front-end business, Shoppers Drug Mart saw sales gain slightly in its fiscal 2010 fourth quarter, but earnings for the period came in flat.

Shoppers Drug Mart, fiscal 2010 fourth quarter, fiscal 2010, fourth quarter, drug store, Canadian drug store chain, pharmacy, front end, sales, same-store sales, profit, revenue, earnings, Jürgen Schreiber, David Williams, Pharmaprix, drug system reform, Prescription sales, average prescription value, Russell Redman

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Sales inch up, profit flat at Shoppers Drug Mart

February 10th, 2011

TORONTO – Citing robust front-end business, Shoppers Drug Mart saw sales gain slightly in its fiscal 2010 fourth quarter, but earnings for the period came in flat.

Full-year fiscal 2010 results came in a bit better, with the Canadian drug store chain reporting a larger revenue uptick as well as a slim increase in profit.

Shoppers Drug Mart said Thursday that for the 12-week fourth quarter ended Jan. 1, sales rose 2.9% to $2.56 billion (Canadian). The retailer noted that the gain was driven by strong results in the front of the stores and that it continued to see sales growth in all regions, led by strong gains in Alberta and Quebec. Overall same-store sales edged up 1.7% during the quarter.

Prescription sales decreased by 0.2% in the fourth quarter to $1.15 billion, as strong growth in the number of prescriptions filled offset a reduction in average prescription value, according to Shoppers Drug Mart. On a same-store basis, prescription sales dipped 0.5% in the quarter. The decrease in average prescription value stems mainly from declined generic prescription reimbursement rates, the result of recently implemented drug system reform initiatives, principally in Ontario, combined with increasing generic prescription utilization rates, the company said.

Meanwhile, front-end sales climbed 5.5% in the fourth quarter to $1.41 billion, marked by robust gains in the beauty, confection and convenience food and beverage categories, Shoppers Drug Mart reported. Same-store sales in the front end were up 3.7%.

The retailer noted that its store network development program, which has resulted in a 6.4% increase in selling space versus a year ago, had a positive impact on sales growth, particularly in the front end. During the fourth quarter, 10 drug stores were opened, including eight relocations, and five major store expansions were completed. Front-end sales growth also was fueled by effective marketing campaigns and promotions, strong seasonal programs and solid store-level execution, the company added.

On the profit side, fourth-quarter net earnings came in at $171.23 million (Canadian), or 79 cents per diluted share (diluted), virtually flat from earnings of $171.06 million, or 79 cents per diluted share, a year earlier. Shoppers Drug Mart called the earnings performance "a strong result considering the fact that recently implemented drug system reform initiatives in certain jurisdictions of Canada had a negative impact on pharmacy reimbursement and margin rates."

In addition, the retailer pointed out that downward pressure on sales and margins in the pharmacy was offset by strong performance in the front of the store, improved purchasing synergies and continued gains in productivity and efficiency across the store network and supporting infrastructure.

The lackluster results come as Shoppers Drug Mart suddenly finds itself searching for a new chief executive officer. Two weeks ago, the company announced that president and CEO Jürgen Schreiber plans to step down on Feb. 15 to "pursue a private equity opportunity outside North America." Upon Schreiber's resignation, board chairman David Williams will serve as president and CEO until a replacement is named.

"Given that fiscal 2010 was a particularly challenging year on a number of fronts, we are encouraged by our performance in the fourth quarter and the momentum it provides as we prepare to confront the challenges and capitalize on the opportunities that lie ahead in 2011 and beyond," Williams said in a statement Thursday. "These operating and financial results speak not only to the strength of our brand and the power of our value proposition with patients and customers, but also to the leadership of our associate-owners and the capabilities of their teams at store level.

"I would also like to take this opportunity to thank Jürgen Schreiber, who will be resigning as a director and as the company's president and chief executive Officer effective February 15, 2011, for his contributions to the company's continued success under his leadership," Williams added. "We wish him well in his future endeavors."

For the 52-week 2010 fiscal year, Shoppers Drug Mart's sales gained 3.9% to $10.38 billion from $9.9 billion a year ago. Same-store sales increased 2.1%, reflecting gains of 1.7% in the pharmacy and 2.5% in the front end. In 2010, prescription sales accounted for 47.8% of the company's sales mix versus 48.3% in the prior year.

Net earnings for 2010 came in at $591.74 million, or $2.72 per diluted share, compared with $584.90 million, or $2.69 per diluted share, in fiscal 2009. Excluding the impact of a $10 million pretax charge from a legal settlement, adjusted net earnings were $598 million, or $2.75 per diluted share, in the 2010 quarter, the company said.

During fiscal 2010, Shoppers Drug Mart opened or acquired 75 drug stores, 43 of which were relocations, and consolidated or closed 10 smaller drug stores and three home health care stores. The retailer also completed 27 major drug store expansions and opened two Murale prestige beauty stores.

At the end of 2010, the company had 1,312 stores, including 1,182 Shoppers Drug Mart/Pharmaprix drug stores, 59 Shoppers Simply Pharmacy/Pharmaprix Simplement Santé stores, 63 Shoppers Home Health Care stores and eight Murale stores. Selling square footage of the retail store network expanded by 6.4% to over 12.7 million square feet.

For fiscal 2011, Shoppers Drug Mart said it expects total sales to rise by 2% to 3%, with same-store sales growth of between 2% and 3.0% in the front end and flat in the pharmacy. The company noted that provincial drug system reform efforts and rising generic utilization stand to reduce average prescription value.

The retailer also forecasts fiscal 2011 EBITDA (earnings before interest, taxes, depreciation and amortization) of $1.22 billion to $1.25 billion and earnings per diluted share of $2.80 to $2.90, adding that it expects momentum in earnings growth to pick up in the second half of the year.

In the store network during 2011, Shoppers Drug Mart expects to open 50 to 55 new drug stores (including about 35 relocations) and expand 25 to 30 stores. It also plans to convert up to 40 drug stores to smaller-format prototypes.