Mr. Domenic Pilla reports
SHOPPERS DRUG MART CORPORATION REPORTS STRONG FOURTH QUARTER RESULTS
Shoppers Drug Mart Corp.
today released its unaudited financial results for the fourth quarter
and fiscal year ended Dec. 29, 2012.
Fourth quarter year-over-year highlights:
- Sales increase of 4.4 per cent to $2.72-billion;
- Same-store increase of 2.7 per cent;
- Pharmacy sales increase of 3.7 per cent to $1.22-billion;
- Same-store increase of 2.1 per cent;
- Retail prescription count increase of 8.3 per cent;
- Same-store increase of 6.1 per cent;
- Front-store sales increase of 5.0 per cent to $1.50-billion;
- Same-store increase of 3.2 per cent;
- Net earnings per share of 85 cents, an increase of 3.7 per cent.
Fiscal 2012 highlights:
- Sales increase of 3.1 per cent to $10.78-billion;
- Same-store increase of 2.2 per cent;
- Pharmacy sales increase of 2.1 per cent to $5.10-billion;
- Same-store increase of 1.2 per cent;
- Retail prescription count increase of 5.4 per cent;
- Same-store increase of 4.5 per cent;
- Front-store sales increase of 4.0 per cent to $5.68-billion;
- Same-store increase of 3.1 per cent;
- Net earnings per share of $2.92, an increase of 2.8 per cent;
- Adjusted net earnings per share of $2.94, an increase of 4.3 per cent;
- Declared four quarterly dividends of 26.5 cents per common share;
- Repurchased 7,949,400 common shares at an aggregate cost of $330-million.
Fourth-quarter results (12 weeks)
Fourth quarter sales were $2.72-billion, an increase of 4.4 per cent over the
same period of the prior year, driven by strong volume growth in
pharmacy and continued sales and market share gains in the front of the
store. On a same-store basis, sales increased 2.7 per cent during the quarter.
Pharmacy sales were $1.22-billion in the fourth quarter, an increase of
3.7 per cent compared with the same period of the prior year, as strong growth in
the number of prescriptions filled at retail, combined with sales gains
in the company's long-term care and specialty pharmacy business units,
was partially offset by a further reduction in average prescription
value. On a same-store basis, pharmacy sales increased 2.1 per cent during the
quarter. During the fourth quarter of 2012, the number of
prescriptions dispensed at retail increased 8.3 per cent compared with the same
period of the prior year and was up 6.1 per cent on a same-store basis.
Pharmacy volume growth was particularly strong in Ontario, driven by
the successful implementation and acceptance of a program to waive the
$2 co-pay on eligible prescriptions for seniors, and in Western
Canada, where the company completed a number of acquisitions in the
second half of the year. Year over year, average prescription value at
retail declined a further 6.0 per cent during the fourth quarter of 2012,
largely the result of further reductions in generic prescription
reimbursement rates due to recently implemented and continuing drug system
reform initiatives in most provincial jurisdictions, along with
increasing generic prescription utilization rates. Generic molecules
comprised 60.2 per cent of prescriptions dispensed in the fourth quarter of
2012 compared with 57.1 per cent in the same period of the prior year. In the
fourth quarter of 2012, pharmacy sales accounted for 44.8 per cent of the
company's sales mix compared with 45.2 per cent in the same quarter of the prior
year.
Front store sales were $1.50-billion in the fourth quarter, an increase
of 5.0 per cent compared with the same period of the prior year, led by strong
growth in over-the-counter medications, cosmetics, and food and
confection. The company's store network development program, which has
resulted in a 3.6-per-cent increase in drugstore selling space compared with a
year ago, continues to have a positive impact on sales growth,
particularly in the front of the store. Front-store sales growth was
also aided by effective seasonal marketing and promotional campaigns; a
strong cough, cold and flu season; and solid program execution at store
level. On a same-store basis, front store sales increased 3.2 per cent during
the fourth quarter of 2012.
Fourth-quarter net earnings were $175-million compared with net earnings
of $176-million in the same period of the prior year. On a
fully diluted basis, net earnings per share were 85 cents in the fourth
quarter of 2012 compared with 82 cents per share in the same period of
the prior year, an increase of 3.7 per cent. Operating income was $250-million
in the fourth quarter of 2012 compared with $256-million in the same
period of the prior year, as strong sales growth and a continued focus
on cost reduction, productivity and efficiency initiatives in
comparable stores was offset by further downward pressure on pharmacy
margins and higher operating expenses related to the company's network
growth and expansion initiatives, along with increased associate
earnings. Other factors that positively impacted net earnings for the
fourth quarter of 2012 were lower finance expenses and a reduction in
the company's effective income tax rate. In addition to the earnings
factors noted above, the cumulative impact of the company's share
repurchase program had a positive impact on growth in net earnings per
share during the fourth quarter of 2012, as there were 4.2 per cent fewer
fully diluted shares outstanding (on a weighted-average basis) compared with the fourth quarter of 2011.
Commenting on the results, Domenic Pilla, president and chief executive officer, stated: "We
are pleased with our fourth-quarter and full-year results. In spite of
the persistent regulatory headwinds that we face as an industry and a
company, we remain encouraged by our underlying operating results and
financial performance. Clearly our brand and our value proposition,
which is grounded upon the pillars of health, beauty and convenience,
continue to resonate with our customers and patients in the communities
we serve from coast to coast. On behalf of our shareholders and the
board of directors, I would like to thank our corporate and regional
office employees, along with our associates and their teams at store
level, for their efforts and contributions to our collective success in
2012."
Fiscal 2012 results (52 weeks)
Sales in 2012 were $10.78-billion compared with $10.45-billion in 2011,
an increase of $323-million or 3.1 per cent, driven by strong volume growth in
retail pharmacy, continued sales and market share gains in the front of
the store, and improved performance in the company's complementary
health care businesses. Increased activity on the acquisition front,
combined with the company's capital investment and store development
program, also had a positive impact on sales growth during the year.
On a same-store basis, sales increased 2.2 per cent in 2012.
Pharmacy sales were $5.10-billion in 2012 compared with $4.99-billion in
2011, an increase of $104-million or 2.1 per cent, as strong growth in the
number of prescriptions filled at retail, combined with sales gains in
the company's MediSystem Technologies and Specialty Health Network
businesses, was largely offset by a further decline in average
prescription value. On a same-store basis, pharmacy sales increased
1.2 per cent during the year. During 2012, the number of prescriptions
dispensed at retail increased 5.4 per cent over the prior year and were up 4.5 per cent
on a same-store basis. Pharmacy volume growth was strongest in Western
Canada, driven in part by the acquisition, in August, of 19 drugstores
and three long-term-care pharmacies from Paragon Pharmacies Ltd.,
and in Ontario where the company increased its market share after the
successful rollout and implementation of a program to waive the $2 co-pay on eligible prescriptions for seniors. Year over year,
average prescription value at retail declined by a further 4.3 per cent in
2012, a decrease that can be largely attributed to further reductions
in generic prescription reimbursement rates as a result of recently
implemented and continuing drug system reform initiatives in most
provincial jurisdictions, combined with greater generic prescription
utilization rates. The company's decision to waive the $2
co-pay on eligible prescriptions for seniors in the Ontario market also
contributed to the year-over-year decrease in average prescription
value. Generic molecules comprised 59.2 per cent of prescriptions dispensed in
2012 compared with 56.9 per cent in the prior year. In 2012, pharmacy sales
accounted for 47.3 per cent of the company's sales mix compared with 47.8 per cent in the
prior year.
Front-store sales were $5.68-billion in 2012 compared with $5.46-billion
in 2011, an increase of $219-million or 4.0 per cent, with the company posting
sales gains in all core categories, led by cosmetics, over-the-counter
medications, and food and confection. On a same-store basis, front
store sales increased 3.1 per cent in 2012. In addition to square-footage
growth, effective marketing campaigns, impactful promotions and
enhanced seasonal programs established positive sales momentum that
drove sustained growth and market share gains in the front of the store
throughout the course of the year.
Net earnings in 2012 were $608-million compared with $614-million in
2011. Net earnings for 2012 are inclusive of a third-quarter
restructuring charge of $13-million (pretax) stemming primarily from
the rationalization and realignment of the company's central office
functions, along with an offsetting gain on disposal of $13-million
(pretax) in respect of a sale-leaseback transaction involving certain
of the company's retail properties. In addition to these items, net
earnings for 2012 also include a second-quarter charge of $5-million
(pretax) from the closure of two Murale stores. Excluding the impact
of the items noted above, adjusted net earnings for 2012 were $612-million or $2.94 per fully diluted share compared with adjusted net
earnings of $611-million or $2.82 per fully diluted share in 2011.
Adjusted net earnings for 2011 exclude the impact of a third-quarter
gain on disposal of $3-million (pretax), which was also in respect of
a sale-leaseback transaction involving certain of the company's retail
properties. During 2012, strong topline growth, particularly in the
front of the store, combined with a continued focus on promotional
effectiveness and margin enhancement initiatives, served to offset
further downward pressure on pharmacy margins, resulting in a
year-over-year increase in gross profit dollars of 3.2 per cent. In 2012,
operating and administrative expenses, including depreciation and
amortization expense but excluding the items noted above, were up 4.8 per cent
over the prior year, driven in part by higher store-level expenses
related to network growth and expansion initiatives, higher marketing
expenses, and increased associate earnings. Year-over-year growth in
depreciation and amortization expense, after excluding the impact of
the sale-leaseback transactions noted above, can also be attributed to
the company's network growth and expansion initiatives, along with
additional investments in supporting infrastructure. Other factors
that positively impacted net earnings in 2012 were lower finance
expenses and a reduction in the company's effective income tax rate.
In addition to the earnings factors noted above, the cumulative impact
of the company's share repurchase program had a positive impact on
growth in earnings per share during 2012, as there were 3.7 per cent fewer
fully diluted shares outstanding (on a weighted-average basis) compared with 2011.
Store network development
During the fourth quarter, the company opened four new drugstores, all
of which were relocations, and completed two major drugstore
expansions. The company also acquired four drugstores during the
quarter, two of which were amalgamated with existing stores. In
addition to this activity, two drugstores were converted to smaller-prototype formats, and one smaller drugstore was closed. The company
also closed one Shoppers Home Health Care store during the quarter.
For the fiscal year ended Dec. 29, 2012, the company opened 41 new
drugstores, 23 of which were relocations, and completed 12 major drugstore expansions. The company also acquired 33 drugstores during the
year, eight of which were amalgamated with existing stores. In
addition to this activity, 15 drugstores were converted to smaller-prototype formats, and five smaller drugstores were consolidated or
closed. The company also closed two Murale stores and one Shoppers
Home Health Care store during the year. At the end of 2012, there were
1,363 stores in the system, composed of 1,295 drugstores (1,240
Shoppers Drug Mart/Pharmaprix stores and 55 Shoppers Simply
Pharmacy/Pharmaprix Simplement Sante stores), 62 Shoppers Home Health
Care stores, and six Murale stores. During 2012, the selling square
footage of the retail store network increased by 3.4 per cent to 13.7 million
square feet at year-end.
Dividend
The company also announced today that its board of directors has
declared a dividend of 28.5 cents per common share, payable April 15,
2013, to shareholders of record as of the close of business on March 28,
2013. This represents an increase in the company's quarterly dividend
payments of 7.5 per cent, resulting in an annualized dividend of $1.14 per
common share.
Normal course issuer bid program
During the fourth quarter of 2012, the company repurchased 1,623,500
common shares under its normal course issuer bid program at an
aggregate cost of $68-million, representing an average repurchase price
of $41.66 per common share. For the fiscal year ended Dec. 29,
2012, the company has repurchased 7,949,400 common shares under its
normal course issuer bid program at an aggregate cost of $330-million,
representing an average repurchase price of $41.52 per common share.
All repurchased common shares were subsequently cancelled. The
company's current normal course issuer bid program will terminate on
Feb. 14, 2013.
The company also announced today that its board of directors has
approved the renewal of its normal course issuer bid program and has
authorized the purchase of up to 10.2 million of its common shares,
representing approximately 5.0 per cent of the 203,911,788 common shares
currently outstanding, by way of normal course purchases effected
through the facilities of the Toronto Stock Exchange.
Under its current normal course issuer bid program that expires
Feb. 14, 2013, the company has repurchased 8,308,900 common shares
at an aggregate cost of $346-million, representing an average
repurchase price of $41.60 per common share. Of the
repurchased common shares, 8,168,900 were subsequently cancelled, with the
remaining 140,000 repurchased common shares expected to be cancelled on
Feb. 28, 2013. Subject to approval of the Toronto Stock Exchange, it is anticipated
that purchases under the new program may commence on Feb. 15, 2013,
and will terminate on Feb. 14, 2014, or on such earlier date as the
company may complete its purchases pursuant to a notice of intention to
be filed with the TSX. Purchases will be made by the company in
accordance with the requirements of the TSX, and the price that the
company will pay for any such common shares will be the market price of
any such common shares at the time of acquisition or such other price
as may be permitted by the TSX. In connection with the normal course
issuer bid program, the company intends to enter into an automatic
purchase plan with its designated broker to allow for purchases of its
common shares during certain predetermined blackout periods, subject
to certain parameters as to price and number of shares. Outside of
these predetermined blackout periods, shares will be repurchased in
accordance with management's discretion, subject to applicable law.
For purposes of the TSX rules, a maximum of 146,845 common shares may
be purchased by the company on any one day under the bid, except where
purchases are made in accordance with the block-purchase exception of
the TSX rules. Common shares purchased by the company will be
cancelled.
Commenting on the dividend increase and the renewal of the share
repurchase program, Brad Lukow, executive vice-president and chief
financial officer, stated: "The board's decision to increase the
dividend and renew the share repurchase program reinforces the
company's commitment to return excess cash to shareholders. It is a
testament to the continued strength of our free-cash-flow-generation
capabilities and our ability to support both growth initiatives and
shareholder distributions in order to enhance long-term shareholder
value."
Fiscal 2013 outlook (52 weeks ending Dec. 28, 2013)
The company expects total sales to increase by between 3.0 per cent and 4.0 per cent in
2013. This expectation is supported by anticipated sales growth of
between 4.0 per cent and 5.0 per cent in pharmacy, an assumption that is underpinned by
increased acquisition activity and above-market prescription-count
growth. On a same-store basis, the company expects pharmacy sales
growth of between 1.5 per cent and 2.5 per cent in 2013, as it will be building on
strong comparable store pharmacy sales growth from last year,
particularly in the second half of 2013. In the front of the store,
the company expects to generate sales growth of between 2.5 per cent and 3.5 per cent,
which reflects a smaller network development and expansion program and,
as well, takes into consideration the anticipated impact of new market
entrants. On a same-store basis, the company expects front-store sales
growth of between 2.0 per cent and 2.5 per cent in 2013. In pharmacy, it is expected
that above-market prescription-count growth will be partially offset by
a further reduction in average prescription value, with the decline in
average prescription value being largely attributable to continued
reductions in generic prescription reimbursement rates as a result of
recently implemented or announced drug system reform initiatives in
most provincial jurisdictions. Furthermore, it is anticipated that
increasing generic prescription utilization rates will also serve as a
contributing factor to the decline in average prescription value. The
anticipated further decline in average prescription value will continue
to put downward pressure on pharmacy margins, resulting in an increased
focus on cost and efficiency initiatives not only in the dispensary
but across the entire spectrum of the company's operations.
In fiscal 2013, the company plans to allocate approximately $275-million
to its base capital expenditure program, with approximately 70 per cent of this
amount to be invested in the store network. In addition to renovations
and enhancements to existing stores, the company's store network
investment program for fiscal 2013 includes the addition of between 30
and 35 new drugstores, approximately half of which will be
relocations, and the completion of between 15 and 20 major drugstore
expansions. This activity should result in an increase in retail
selling square footage of approximately 3.0 per cent. The balance of the
company's capital expenditures will be directed to investments in
supporting infrastructure, including information technology and supply
chain. Incremental to its base capital expenditure plans, the company
will continue to pursue attractive opportunities in the marketplace to
acquire drugstores and prescription files.
2012 annual report
The company's audited consolidated financial statements and the notes
thereto for the year ended Dec. 29, 2012, will be available on or
before March 27, 2013. Management's discussion and analysis for the
year ended Dec. 29, 2012, including further discussion and analysis
of fourth-quarter events or items that affected results of operations,
financial position and cash flows, will also be available on or before
March 27, 2013. Both documents will be contained in the company's 2012
annual report and will be available in the investor relations section
of the company's website or on the Canadian Securities Administrators' website.
Other information
The company will hold an analyst call at 3 p.m. (Eastern Standard
Time) today to discuss its fourth-quarter results and its outlook for
fiscal 2013. The call may be accessed by dialling 416-695-7806 from
within the Toronto area or 1-888-789-9572 outside of Toronto. The
seven-digit participant passcode number is 8845571. The call will
also be simulcast on the company's website for all interested parties.
The webcast can be accessed through the investor relations section of the
Shoppers Drug Mart website. The conference call will be archived in the investor relations
section of the Shoppers Drug Mart website until the company's next
analyst call. A playback of the call will also be available by
telephone until 11:59 p.m. (Eastern Standard Time) on Feb. 21,
2013. The call playback can be accessed after 5 p.m. (Eastern
Standard Time) on Thursday, Feb. 7, 2013, by dialling 905-694-9451
from within the Toronto area or 1-800-408-3053 outside of Toronto.
The seven-digit passcode number is 1102811.
We seek Safe Harbor.
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