Health reforms pressuring pharmacy business, Loblaw president says

BRAMPTON, Ontario — Shoppers Drug Mart saw revenue and same-store sales climb in the fiscal 2015 second quarter at parent Loblaw Cos.

Loblaw said Thursday that for the 12 weeks ended June 20, Shoppers Drug Mart’s sales totaled $2.689 billion, up 3.1% from $2.476 billion a year earlier. In the front end, sales rose 3.2% to $1.415 billion. Pharmacy sales edged up 2.9% to $1.274 billion.

Second-quarter same-store sales at Shoppers Drug Mart grew 3.8%, reflecting gains of 3.7% in the front end and 3.9% in the pharmacy.

Prescription count at the drug chain increased by 4.3% overall in the quarter and by 5% on a comparable pharmacy basis. Year over year, the average prescription value dipped by 0.5%, compared with a decrease of 1.7% in the prior-year period.

Generic drugs accounted for 64.6% of prescriptions filled at Shoppers Drug Mart in the 2015 second quarter, up from 62.8% in the 2014 quarter.

Loblaw’s total retail segment sales for the second quarter rose 2.2% to $10.318 billion from $10.097 billion a year earlier, with food retail sales inching up 1.9% to $7.629 billion. On a same-store basis, food retail sales gained 4.2% excluding the impacts of fuel (1.2%) and a distribution change by a tobacco supplier (0.9%), Loblaw said. Overall comparable-store sales, including food and drug retail, increased 2.5%.

Sales growth was strong in food, moderate in pharmacy and health and beauty aids, and flat in general merchandise (excluding apparel), Loblaw reported. Falling gas prices led to a significant decline in fuel sales, the company noted.

“I am pleased with our overall performance in the second quarter, as we continued to execute well against our strategic framework,” Loblaw Cos. president and executive chairman Galen Weston said in a statement. “Looking ahead, the grocery industry remains highly competitive and health care reform continues to put pressure on our pharmacy business. We are well-positioned to achieve earnings growth through a stable trading platform, incremental efficiencies, synergies and a stronger balance sheet.”

During the 12 months ended June 20, Loblaw opened 48 food and drug stores and closed 29, with another two franchise food retail stores and 16 drug stores divested under a Consent Agreement with Canada’s Competition Bureau for the acquisition of Shoppers Drug Mart.

As of June 20, Loblaw had a total of 2,442 food and drug stores, including 1,306 associate-owned drug stores, 609 corporate-owned stores and 527 franchise stores.

Loblaw reported that it plans to shut 52 unprofitable retail locations across a range of banners and formats as part of a restructuring plan that was finalized before the end of the 2015 second quarter. The company expects the closings to occur over the next 12 months. On an annualized basis, the closures will lower sales by about $300 million but have a positive impact of $35 million to $40 million on operating income.

Total net synergies achieved during the second quarter were $53 million, generated mainly from improved cost of goods sold and purchasing efficiencies in goods not for resale, Loblaw added. Net synergies achieved since the closing of the Shoppers Drug Mart acquisition in late March 2014 to the end of the 2015 second quarter totaled $198 million. Loblaw is projecting annualized synergies of $300 million (net of related costs) in the third year following the close of the Shoppers Drug Mart acquisition.