Sales and earnings inched up in the second quarter at Shoppers Drug Mart Corp., whose chief executive noted that the company still generated growth despite government reforms that are squeezing pharmacy business.

Shoppers Drug Mart, second quarter, Canadian drug store chain, revenue, sales, same-store sales, comparable-store sales, David Williams, Pharmaprix, drug system reforms, front end, pharmacy, Russell Redman

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Shoppers Drug Mart ekes out 2Q gains

July 21st, 2011

TORONTO – Sales and earnings inched up in the second quarter at Shoppers Drug Mart Corp., whose chief executive noted that the company still generated growth despite government reforms that are squeezing pharmacy business.

The Canadian drug store chain said Thursday that for the 12-week second quarter ended June 18, revenue totaled $2.39 billion, up just 1.4% year over year. Same-store sales edged up 0.8% during the quarter.

Sales growth in the second quarter was driven by the front end in all regions of the country, according to Shoppers Drug Mart. Front-end revenue rose 3.8% to$1.24 billion, led by continued strength and sales growth in over-the-counter medications, cosmetics, and food and candy, the retailer said. Comparable-store sales in the front end increased 2.4%.

Meanwhile, prescription sales fell 1% to $1.15 billion in the second quarter. Shoppers Drug Mart noted that continued growth in the number of prescriptions filled was offset by a decline in average prescription value. On a same-store basis, prescription sales dipped 0.8% in the quarter. Total prescription counts rose 4.1% versus a year ago and were up 4.3% on a same-store basis.

According to the company, the decrease in average prescription value stems from a reduction in generic drug reimbursement rates — the result of drug system reforms in some parts of Canada, namely Ontario, British Columbia, Alberta and Quebec — combined with rising generic utilization rates. Generics represented 56.2% of prescriptions dispensed by Shoppers Drug Mart in the second quarter, up from 52.5% a year earlier.

In the 2011 second quarter, prescription sales accounted for 48.2% of the retailers sales mix, compared with 49.4% in the prior-year period.

On the earnings side, second-quarter net income totaled $148 million, or 68 cents per diluted share, up slightly from $146 million, or 67 cents per diluted share, a year earlier. The earnings-per share-result was in line with the consensus forecast of financial analysts, who projected EPS of 68 cents for the drug chain's second quarter.

Shoppers Drug Mart said the strong front-end performance in the quarter partially offset pressure on sales and margins in the pharmacy from government reform efforts. The retailer added that cost reduction and productivity gains also helped offset higher store-level expenses related to network growth and expansion initiatives, along with continued pricing and promotional investments.

"As we continue to work through a difficult year of transition in response to government reform initiatives and the resultant funding and reimbursement pressures this has placed on our pharmacy business, we are encouraged by our performance in the second quarter and our results thus far in fiscal 2011," interim president and chief executive officer David Williams said in a statement.

"We continue to make the necessary adjustments to our business model without compromising on our commitment to deliver the best in patient care and customer service," Williams explained. "Our ability to deliver growth in the context of this environment speaks to the dedication and commitment of our associate-owners and their teams at store level whose efforts, along with those of our central and regional office employees, have us well-positioned entering the second half of the year."

During the second quarter, Shoppers Drug Mart opened 13 drug stores, including eight relocations, and closed one smaller drug store. The retailer also completed seven major drug store expansions and converted 11 other stores to smaller formats.

As of the quarter's end, the chain operated 1,320 stores, including 1,249 drug stores (1,189 Shoppers Drug Mart/Pharmaprix stores and 60 Shoppers Simply Pharmacy/Pharmaprix Simplement Santé stores), 63 Shoppers Home Health Care stores and eight Murale prestige beauty stores.