TORONTO — Shoppers Drug Mart Corp. saw revenue and same-store sales rise in the second quarter of 2013, while earnings topped analysts’ forecast by a penny.
Canada’s largest drug chain reported the positive results just days after announcing a blockbuster deal to be acquired by Loblaw Cos. for $12.4 billion (Canadian). Pending court, regulatory and shareholder approval of the deal and other closing conditions, the transaction is expected to close within six to seven months.
Shoppers Drug Mart said Thursday that for the 12-week second quarter ended June 15, overall sales increased 3.3% to nearly $2.54 billion (Canadian) from about $2.46 billion a year earlier, fueled by a strong performance in the front end and growth in prescription count.
In the front of the store, second-quarter sales were up 3.6% year over year to $1.33 billion. Shoppers Drug Mart said sales rose in all categories, led by cosmetics, over-the-counter medications, and food and candy. The company noted that its ability to leverage pharmacy traffic, along with effective marketing campaigns and promotions, lifted transaction counts and growth in average basket size in the front end during the quarter. Increased retail selling space from the store network development program also spurred front-end sales results, the retailer added..
Pharmacy sales in the second quarter advanced 3.1% to $1.21 billion. Shoppers Drug Mart attributed the increase to strong growth in prescriptions filled at retail and sales gains in the company’s MediSystem Technologies business, partially offset by a further reduction in average prescription value. Pharmacy sales accounted for 47.6% of the retailer’s revenue in the quarter, compared with 47.7% in the prior-year period.
Same-store sales grew 2% during the second quarter, reflecting gains of 2.6% in the front end and 1.3% in the pharmacy.
Retail script count climbed 7% overall in the quarter and 5.1% on a same-store basis. Shoppers Drug Mart reported that pharmacy volume growth remains particularly strong in Ontario and Alberta.
Average prescription value at retail fell 4.2% during the second quarter, primarily due to cuts in generic drug reimbursement due to drug system reform initiatives in most provinces, along with rising generic utilization rates. Generics represented 61.3% of prescriptions dispensed in the quarter, compared with 58.6% a year earlier.
On the earnings side, net income in the second quarter came in at $147 million, or 73 cents per diluted share, compared with $145 million, or 69 cents per diluted share, a year earlier. Net profit for the year-ago quarter included a pretax charge of $5 million from the closure of two Murale luxury beauty stores; excluding that charge, adjusted net earnings for the 2012 quarter were $149 million, or 71 cents per share.
Analysts, on average, projected the company’s 2013 second-quarter earnings at 72 cents per share, according to Zacks Investment Research.
"We are pleased with our second-quarter operating and financial results. Together with our associate-owners and their teams at store level, we continue to execute on our strategic priorities and growth initiatives which are driving sales and market share gains in our core health, beauty and convenience categories," Domenic Pilla, president and chief executive officer of Shoppers Drug Mart, said in a statement. "At the same time, we remain diligent in our efforts to reduce costs and drive efficiencies across the business. Our efforts thus far have us well-positioned heading into the back half of the year in what remains a challenging economic, competitive and regulatory environment."
For the 2013 first half, Shoppers Drug Mart’s sales rose 3.6% to $5.02 billion, including gains of 3.2% in the pharmacy sales and 3.9% in the front end. Comparable-store sales increased 2.2% in the half, with comp-store results edging up 1.4% in the pharmacy and 2.9% in the front end. Prescriptions dispensed at retail were up 7.1% for the period.
First half net earnings were $266 million, or $1.31 per share, compared with $264 million, or $1.25 per share, a year earlier. Excluding the charge from the closing of two Murale stores, adjusted net earnings for the 2012 first half were $268 million, or $1.27 per share.
During the second quarter, Shoppers Drug Mart opened eight new drug stores, including six relocations, and completed four major drug store expansions. Three smaller drug stores were consolidated or closed.
As of June 15, the retailer had 1,367 stores overall, including 1,242 Shoppers Drug Mart/Pharmaprix drug stores, 57 Shoppers Simply Pharmacy/Pharmaprix Simplement Santé pharmacies, 62 Shoppers Home Health Care stores and six Murale beauty stores. Retail selling space grew 2.3% year over year to 13.8 million square feet.
