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SHOPPERS DRUG MART CORPORATION ANNOUNCES FOURTH QUARTER Toronto, ON, February 11, 2010 - Shoppers Drug Mart Corporation (TSX: SC) today announced its unaudited financial results for the fourth quarter and fiscal year ended January 2, 2010. The Company also announced that its Board of Directors has declared a dividend of 22.5 cents per common share, payable April 15, 2010 to shareholders of record as of the close of business on March 31, 2010. This represents an increase in the Company’s quarterly dividend payments of approximately 5%, resulting in an annualized dividend of 90 cents per common share. Fourth Quarter Results (12 Weeks Compared to 13 Weeks in Fiscal 2008) The Company recorded sales of $2.489 billion in the fourth quarter of 2009 which was 12 weeks in duration compared to a 13 week quarter in 2008. Excluding the benefit of the extra week in the prior year, which accounted for $174 million of additional sales, sales increased 7.1% on a comparable 12 week basis, with the Company continuing to experience strong sales growth in all regions of the country. The Company’s capital investment program, which resulted in a 9.9% increase in selling space compared to a year ago, together with effective marketing initiatives, strong seasonal programs and an aggressive promotional calendar, combined to drive this top-line growth. On a same-store (12 week) basis and excluding tobacco products, sales increased 4.7% during the fourth quarter of 2009. On a comparable 12 week basis, prescription sales increased 8.0% in the fourth quarter to $1.148 billion, accounting for 46.1% of the Company’s sales mix compared to 46.2% in the same period last year. On a same-store (12 week) basis, prescription sales increased 5.5% during the fourth quarter of 2009, driven by strong growth in the number of prescriptions filled, while increased generic utilization continued to have a deflationary impact on sales growth in the category. In the fourth quarter of 2009, generic molecules represented 53.7% of prescriptions dispensed compared to 52.2% of prescriptions dispensed in the fourth quarter of 2008. On a comparable 12 week basis, front store sales increased 6.5% to $1.341 billion in the fourth quarter, with the Company continuing to experience sales gains in its core categories, led by over-the-counter medications. Strong sales in over-the-counter medications and related categories can be attributed to customer and patient awareness of the H1N1 virus, coupled with in-store programs that focused on education, prevention and wellness. On a same-store (12 week) basis and excluding tobacco products, front store sales increased 4.1% during the fourth quarter of 2009.
Fourth quarter net earnings increased to $171 million or 79
cents per share (diluted) from $167 million or 77 cents per share (diluted) a
year ago. Excluding the benefit of the extra week from the prior year’s
results, which the Company estimates to have been worth approximately 3 cents
per share, fourth quarter net earnings increased by approximately 7% in 2009. In reference to the dividend increase, Mr. Schreiber went on to say, “The amount of this increase is essentially in-line with our rate of growth in reported net earnings and as such, serves to maintain our dividend payout ratio at a sector-leading 33 percent.” Fiscal 2009 Results (52 Weeks Compared to 53 Weeks in Fiscal 2008) Sales in 2009 were $9.986 billion compared to $9.423 billion in 2008, an increase of $563 million or 6.0%. During 2009, the Company continued to experience strong sales growth in all regions of the country, led once again by gains in Québec. The Company’s capital investment and store development program continues to have a positive impact on sales growth. Sales growth was also aided by the Company’s efforts to acquire drug stores and prescription files, and by the inclusion of a full year’s results from Shoppers Drug Mart Specialty Health Network Inc., a business that was acquired by the Company in the third quarter of 2008. On a same-store (52 week) basis and excluding tobacco products, sales increased 4.8% in 2009. Prescription sales were $4.824 billion in 2009 compared to $4.486 billion in 2008, an increase of $338 million or 7.5%. In 2009, prescription sales accounted for 48.3% of the Company’s sales mix compared to 47.6% in the prior year. On a same-store (52 week) basis, prescription sales increased 5.7% during the year. Consistent with the prior year, pharmacy sales growth was driven by strong growth in the number of prescriptions filled, while greater generic utilization continued to have a deflationary impact on sales growth in the category. In 2009, generic molecules represented 53.0% of prescriptions dispensed compared to 51.2% of prescriptions dispensed in 2008, an increase of 3.5%. Front store sales were $5.162 billion in 2009 compared to $4.937 billion in 2008, an increase of $225 million or 4.6%. On a same-store (52 week) basis and excluding tobacco products, front store sales increased 4.0% in 2009. Store network expansion and square footage growth, combined with effective merchandising and category management initiatives, drove front store sales growth during the year. Additionally, the Company invested aggressively in marketing, pricing and promotional activities throughout 2009 in order to drive continued top-line growth in its front store categories. Net earnings were $585 million in 2009 compared to $554 million in 2008, an increase of $31 million or 5.6%. On a diluted basis, earnings per share were $2.69 in 2009 compared to $2.55 in 2008. Excluding the benefit of the extra week from the prior year’s results which, as stated above the Company estimates to have been worth approximately 3 cents per share, net earnings increased by approximately 7% in 2009. Top-line growth, improved purchasing synergies and productivity and efficiency gains, partially offset by higher operating costs and increased amortization tied to the Company’s strategic growth and store network expansion initiatives, resulted in a year-over-year increase in operating income. Net earnings growth in 2009 also benefited from a reduction in interest expense and from a decline in the Company’s effective income tax rate. Store Network Development During the fourth quarter of 2009, 10 drug stores were opened or acquired, three of which were relocations. The Company also added two Murale luxury beauty stores to its network during the quarter. For the fiscal year ended January 2, 2010, the Company opened or acquired 114 drug stores, 40 of which were relocations, and closed four smaller stores. The Company also opened four Murale stores in 2009. At year-end, there were 1,291 stores in the system, comprised of 1,219 drug stores (1,170 Shoppers Drug Mart/Pharmaprix stores and 49 Shoppers Simply Pharmacy/Pharmaprix Simplement Santé stores), 66 Shoppers Home Health Care stores and six Murale stores. During 2009, the selling square footage of the retail store network increased by 9.9%, to in excess of 11.9 million square feet at year end. Fiscal 2010 Outlook (52 Weeks Ending January 1, 2011) The Company expects total sales to increase by between 6.0% and 7.0% in 2010. This expectation is underpinned by anticipated same-store sales growth of between 4.0% and 5.0% in pharmacy and 2.75% to 4.25% in the front of the store. In pharmacy, it is expected that prescription sales growth will continue to be driven by strong growth in prescription counts, offset somewhat by an anticipated decrease in average value, as generic prescription utilization rates are expected to rise at an increasing rate. As generic prescription utilization rates increase, the Company intends to pursue alternative sourcing and procurement models for generic drug products, including contracting for the fabrication of generic molecules to be offered on a private label basis. The Company believes that these alternative sourcing and procurement arrangements will improve service levels, through enhanced supply chain management, and promote further increases in generic prescription utilization rates. The Company specifically cautions that its prescription sales growth estimates are based on what it believes to be a reasonable set of assumptions with respect to matters such as the cost of prescription drugs, drug pricing and pharmacy reimbursement regulation and programs, among others, however potential changes to the Ontario drug system may differ materially from the Company’s assumptions. In the front of the store, it is the Company’s expectation that sustained investments in pricing and promotional activities will be required throughout 2010 in order to drive the anticipated rate of sales growth. In fiscal 2010, the Company plans to allocate approximately $560 million to capital expenditures, with approximately 70% of this amount being invested in the store network, including acquisitions of drug stores, prescription files and land. This should result in an increase in retail selling square footage of between 8% and 9%. This will be accomplished through the addition of between 105 and 115 new drug stores, approximately 45 of which will be relocations and 10 of which will be Shoppers Simply Pharmacy or Pharmaprix Simplement Santé formats, and through the completion of between 25 and 30 major drug store expansions. 2009 Annual Report Other Information About Shoppers Drug Mart Corporation For more information, visit www.shoppersdrugmart.ca. Forward-looking Information and Statements The forward-looking information and statements contained herein are based on certain factors and assumptions, certain of which appear proximate to the applicable forward-looking information and statements contained herein. Inherent in the forward-looking information and statements are known and unknown risks, uncertainties and other factors beyond the Company’s ability to control or predict, which give rise to the possibility that the Company’s predictions, forecasts, expectations or conclusions will not prove to be accurate, that its assumptions may not be correct and that the Company’s plans, objectives and statements will not be achieved. Actual results or developments may differ materially from those contemplated by the forward-looking information and statements. The material risk factors that could cause actual results to differ materially from the forward-looking information and statements contained herein include, without limitation: the risk of adverse changes to laws and regulations relating to prescription drugs and their sale, including pharmacy reimbursement programs and the availability of manufacturer allowances, or changes to such laws and regulations that increase compliance costs; the risk of adverse changes in economic and financial conditions in Canada and globally; the risk of increased competition from other retailers; the risk of an inability of the Company to manage growth and maintain its profitability; the risk of exposure to fluctuations in interest rates; the risk of material adverse changes in foreign currency exchange rates; the risk of an inability to attract and retain pharmacists and key employees; the risk of an inability of the Company’s information technology systems to support the requirements of the Company’s business; the risk of changes to estimated contributions of the Company in respect of its pension plans or post-employment benefit plans which may adversely impact the Company’s financial performance; the risk of changes to the relationships of the Company with third-party service providers; the risk that the Company will not be able to lease or obtain suitable store locations on economically favourable terms; the risk of adverse changes to the Company’s results of operations due to seasonal fluctuations; risks associated with alternative arrangements for sourcing generic drug products, including intellectual property and product liability risks; the risk that new, or changes to current, federal and provincial laws, rules and regulations, including environmental and privacy laws, rules and regulations, may adversely impact the Company’s business and operations; the risk that violations of law, breaches of Company policies or unethical behaviour may adversely impact the Company’s financial performance; property and casualty risks; the risk of injuries at the workplace or health issues; the risk that changes in tax law, or changes in the way that tax law is expected to be interpreted, may adversely impact the Company’s business and operations; the risk that new, or changes to existing, accounting pronouncements may adversely impact the Company; the risks associated with the performance of the Associate-owned store network; and the risk of damage to the reputation of brands promoted by the Company, or to the reputation of any supplier or manufacturer of these brands. This is not an exhaustive list of the factors that may affect any of the Company’s forward-looking information and statements. Investors and others should carefully consider these and other risk factors and not place undue reliance on the forward-looking information and statements. Further information regarding these and other risk factors is included in the Company’s public filings with provincial securities regulatory authorities including, without limitation, the sections entitled “Risks and Risk Management” and “Risks Associated with Financial Instruments” in the Company’s Management’s Discussion and Analysis for the 53 week period ended January 3, 2009. The forward-looking information and statements contained in this news release represent the Company’s views only as of the date of this release. Forward-looking information and statements contained in this news release about prospective results of operations, financial position or cash flows that are based upon assumptions about future economic conditions and courses of action are presented for the purpose of assisting the Company’s shareholders in understanding management’s current views regarding those future outcomes and may not be appropriate for other purposes. While the Company anticipates that subsequent events and developments may cause the Company’s views to change, the Company does not undertake to update any forward-looking information and statements, except to the extent required by applicable securities laws. Additional information about the Company, including the Annual Information Form, can be found at www.sedar.com. Click here for Quarter 4, 2009 Financial Statements -30- For further information:
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