LONGUEUIL, Quebec — As it braces for the impact of drug pricing reform, Jean Coutu Group recorded sales and earnings gains for its fiscal 2011 second quarter.
The Canadian drug store chain said Tuesday that for the second quarter ended Aug. 28, total sales edged up 2.2% to $622 million (Canadian) from $608.7 million a year earlier. Coutu’s revenue consists of sales and other revenue derived from franchising activities, with merchandise sales to franchisees through the company’s distribution centers representing most of its sales.
Coutu’s franchise network saw overall retail sales rise 4% to $914.1 million in the second quarter from $878.9 million in the year-ago period. Pharmacy sales were up 3.9%, and front-end revenue rose 3.1%. During the second quarter, sales of nonprescription drugs, which represented 8.4% of total retail sales, increased by 4.5%. Coutu noted that a higher percentage of generic prescriptions in the quarter (53.2% versus 49.6% a year earlier) had a deflationary impact on pharmacy retail sales.
On a same-store basis, franchise network retail sales grew 1.9%, reflecting year-over-year gains of 2.2% in the pharmacy and 0.2% in the front end.
Operating earnings before amortization (OIBA), meanwhile, climbed to $69.3 million in the fiscal 2011 second quarter from $61.4 million in the prior-year time span. Coutu attributed the increase mainly to a strong operational performance in franchising activities and its subsidiary Pro Doc Ltd. subsidiary.
No share of loss in Rite Aid Corp., in which Coutu holds an ownership stake, was accounted in the Canadian company’s earnings during the fiscal 2011 second quarter, compared with $24.3 million, or 10 cents per share, a year earlier.
During the fiscal year ended Feb. 27, Coutu’s share of loss in Rite Aid exceeded the carrying value of its investment. As required by Canadian GAAP, Coutu reduced the carrying value of its investment down to zero and ceased recording its share of loss in Rite Aid exceeding the carrying value of its investment. For the 13-week period ended Aug. 28, Coutu’s unrecognized share of loss in Rite Aid totaled to $55.4 million.
As of Aug. 28, Coutu’s total unrecognized share of loss in Rite Aid amounted to $163.9 million.
Net earnings for the fiscal 2011 second quarter came in at $42.6 million, or 18 cents per share, compared with $14.9 million, or 7 cents per share, a year before.
Earnings before specific items and share of loss in Rite Aid were $42.8 million, or 18 cents per share, in the 2011 quarter versus $37.1 million, or 16 cents per share, in the prior-year period, an increase of 15.4%.
For the first half of fiscal 2011, Coutu’s overall sales rose 3% to $1.26 billion, with franchise network retail sales up 4.6% to $1.84 billion. Same-store sales in the period gained 2.4%. Factoring in the company’s stake in Rite Aid, net earnings, OIBA and earnings before specific items and share of loss in Rite Aid also were up significantly in the half.
"We are satisfied with the excellent results of the second quarter and first half of fiscal year 2011. By maintaining the pace of our expansion projects and implementing our business plan, we achieved the objectives we had set," president and chief executive officer François Coutu said in a statement.
Jean Coutu noted that this summer Quebec’s health minister announced its intention to cut the prices of generic drugs after the implementation of Ontario’s drug reform, which was unveiled last July. The pharmacy operator said that if measures similar to those adopted in Ontario are implemented in Quebec, the company’s consolidated results would be impacted.
"We are still waiting a decision from Quebec’s minister of Health and Social Services concerning the government of Quebec’s intention to reduce the price of generic drugs as announced last June 25," François Coutu commented.
The retailer opened three stores, including one relocation, during the fiscal 2011 second quarter, and six stores were significantly renovated or expanded. Overall, the company operates a network of 378 franchised stores in Quebec, New Brunswick and Ontario under the banners PJC Jean Coutu, PJC Clinique, PJC Santé and PJC Santé Beauté.
