Rising OTC drug sales help offset generics' deflationary impact

VARENNES, Quebec — A rise in front-end sales hoisted revenue at Jean Coutu Group’s retail store network for the fiscal 2017 second quarter.

The Canadian drug store operator also saw corporate sales climb in the quarter and topped financial analysts’ consensus forecast for adjusted earnings per share.

Jean Coutu said Wednesday that for the second quarter ended Aug. 27, retail sales at its franchised store network were up 2.4% to nearly $1.06 billion (Canadian) from about $1.03 billion a year earlier.

Sales climbed 5.2% in the front of the store and 1.2% in the pharmacy. Same-store sales in the quarter grew 2% year over year, reflecting gains of 4.5% in the front end and 0.8% in the pharmacy.

The company noted that sales of nonprescription drugs, which represented 8.4% of total retail sales, rose by 5.1% compared with 1.1% in the prior-year period.

Prescription count edged up 4% overall in the quarter and by 3.7% on a comparable-store basis. Generic drugs accounted for 71.3% of prescriptions during the period versus 70% a year ago.

Jean Coutu said pharmacy retail sales growth in the second quarter was negatively impact by 0.4% from the introduction of new generics and 0.3% from generic drug price reductions. Periodic deductions agreed on between the Ministère de la Santé et des Services Sociaux” (MSSS) and the Association Québécoise des Pharmaciens Propriétaires (AQPP) reduced pharmacy sales growth by another 1.4%, the company added.

“During the second quarter, sales of the commercial section showed a significant increase despite a still very competitive environment, demonstrating the effectiveness of our business strategies,” Jean Coutu Group president and chief executive officer François Coutu said in a statement. “We will continue to make the necessary efforts to promote sales growth and maintain our leadership.”

On the corporate side, sales totaled $701.2 million for the second quarter, up 2.1% from $686.6 million a year earlier. Jean Coutu said the gain stems from overall market growth and an increase in sales by the commercial section of its distribution centers.

Jean Coutu Group’s revenue comes primarily from merchandise sales to franchised stores and other franchising activities.

Net income for the fiscal 2017 second quarter was $51.5 million, or 28 cents per share, compared with $53.8 million, or 29 cens per share, in the year-ago period. Analysts, on average, had projected EPS at 26 cents for the 2017 quarter.

Operating income before amortization (OIBA) came in at $78.5 million for the second quarter, compared with $81.7 million a year earlier.

Jean Coutu said that two stores were renovated or expanded during the second quarter. The company’s network encompasses 420 franchised stores in Quebec, New Brunswick and Ontario under PJC Jean Coutu, PJC Clinique, PJC Santé and PJC Santé Beauté banners.