Net earnings decline for fiscal 2016 fourth quarter, full year

VARENNES, Quebec — Retail store sales edged up for the fiscal 2016 fourth quarter and full year at Jean Coutu Group, but the company saw net earnings decline year over year for both periods.

Jean Coutu said Wednesday that for the fourth quarter ended Feb. 27, revenue for its franchise store network grew 0.6% to $1.106 billion (Canadian). Sales rose 1.3% in the front of the store but dipped 0.1% in the pharmacy. Sales of nonprescription drugs, which accounted for 9% of total retail sales, fell 2.6% versus an increase of 4.2% a year earlier.

Same-store sales for the retail network inched up 0.3% for the 2016 fourth quarter, reflecting a 0.9% gain in the front end and a 0.3% decrease in the pharmacy.

Generic drugs represented 70.3% of prescriptions filled in the fourth quarter, up from 68.5% in the prior-year period. Jean Coutu noted that introductions of new generics reduced pharmacy retail sales growth by 0.4%. In addition, the company said, generic drug price cuts lowered retail sales growth by 0.3%, and the periodic deductions agreed on between the Ministry of Health and Social Services and the Association Québécoise des Pharmaciens Propriétaires (AQPP) trimmed sales growth by another 1.6%.

Prescription count climbed 3.2% in the 2016 fourth quarter, exceeded the growth of pharmacy retail sales. Jean Coutu said the difference stems mainly from the deflationary impact of a higher increase of generic prescriptions in the 2016 quarter versus a year earlier, as well as a smaller gain in sales of more expensive specialty drugs during the last quarter. On same-store basis, prescriptions filled rose 3.1%.

For the full 2016 fiscal year, Jean Coutu’s store network sales were up 2.8% to $4.255 billion, including gains of 2.2% in the front end and 3.2% in the pharmacy.

Comparable-store sales rose 1.5% for the year, with increases of 1.6% in the front of the store and 1.2% in the pharmacy. Sales of over-the-counter drugs, which represented 8.7% of total retail sales, advanced 1.6%, compared with 1.7% in fiscal 2015. Prescription count grew 2.9% overall and 2.7% on a comp-store basis in fiscal 2016.

“During the fourth quarter, we began the transfer of our operations from our distribution center and head office to their new location in Varennes. We expect to complete the transfer by the end of the summer. The quarter’s results were affected by the costs related to this gradual transition during this period,” president and chief executive officer François Coutu said in a statement. “During the upcoming year, we will continue to implement our strategic plan and will make every effort to pursue our growth.”

On the corporate side, Jean Coutu’s fiscal 2016 fourth-quarter revenues fell 1% year over year to $706.6 million. The company attributed the decline mainly to decreased sales of OTC medicines for cold and flu. However, full-year fiscal 2016 sales rose 1.5% to $2.855 billion, driven by overall market growth and partially offset by the deflationary impact of new generics and generic drug price reductions.

Jean Coutu’s income consists of sales plus other revenue from franchising activities in Canada, with merchandise sales to franchisees through its distribution centers representing most of the company’s sales.

Net earnings came in at $51.5 million, or 28 cents per share, for the 2016 fourth quarter, down from $55.2 million or 30 cents per share, a year earlier. Fiscal 2016 net income totaled $213.7 million, or $1.14 per share, compared with $218.9 million, or $1.17 per share, in fiscal 2015.

Jean Coutu said the fiscal year profit decrease is mainly due to a tax provision of $4.7 million recorded after a judgment by the Quebec Court of Appeal. The court reversed a judgment rendered at first instance in favor of Jean Coutu by the Superior Court in relation to an introductory motion of suit for rectification of books and records and declaratory relief filed by the corporation, according to the company. On Nov. 19, 2015, the Supreme Court of Canada granted the leave to appeal filed by Jean Coutu, and the court hearing is scheduled in May 2016.

During fiscal 2016, Jean Coutu’s retail network opened seven stores , including three relocations, and closed three stores. Ten stores also were significantly remodeled or expanded. As of Feb. 27, Jean Coutu Group had 417 franchised stores in Quebec, New Brunswick and Ontario under the PJC Jean Coutu, PJC Clinique, PJC Santé and PJC Santé Beauté banners.

Jean Coutu reported that for fiscal 2017 it plans to allocate $60.1 million to capital expenditures and banner development, including $19 million to complete its new distribution center in Varennes. As previously announced, the project — a total investment of nearly $180 million — is slated to be finished during fiscal 2017. Plans also call for the opening of seven stores, including four relocations, plus nine store renovations/expansions.