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Shoppers Drug Mart Corporation reports first quarter results

Continued strength in front store sales and prescription count growth

TORONTO, April 25, 2013 /CNW/ - Shoppers Drug Mart Corporation (TSX: SC) today announced its financial results for the first quarter ended March 23, 2013.

First Quarter Year-Over-Year Highlights

  • Sales increase of 3.8% to $2.486 billion
    • Same-store increase of 2.5%
  • Pharmacy sales increase of 3.3% to $1.207 billion
    • Same-store increase of 1.6%
  • Retail prescription count increase of 7.3%
    • Same-store increase of 5.4%
  • Front store sales increase of 4.3% to $1.278 billion
    • Same-store increase of 3.3%
  • Net earnings per share of $0.59, an increase of 5.4%
  • Repurchased 2,009,400 common shares at an aggregate cost of $86 million

First Quarter Results (12 Weeks)

First quarter sales were $2.486 billion, an increase of 3.8% over the same period of the prior year, driven by strong volume growth in pharmacy and continued sales and market share gains in the front of the store.  On a same-store basis, sales increased 2.5% during the quarter.

Pharmacy sales were $1.207 billion in the first quarter, an increase of 3.3% compared to the same period of the prior year, as strong growth in the number of prescriptions filled at retail, combined with sales gains in the Company's long-term care and specialty pharmacy business units, was partially offset by a further reduction in average prescription value.  On a same-store basis, pharmacy sales increased 1.6% during the quarter.  During the first quarter of 2013, the number of prescriptions dispensed at retail increased 7.3% compared to the same period of the prior year and was up 5.4% on a same-store basis.  Pharmacy volume growth was particularly strong in Ontario, driven in part by the successful implementation and acceptance of a program to waive the two dollar co-pay on eligible prescriptions for seniors, and in Western Canada where the Company completed a number of acquisitions in the second half of last year.  Year-over-year, average prescription value at retail declined a further 4.8% during the first quarter of 2013, largely the result of further reductions in generic prescription reimbursement rates due to recently implemented and ongoing drug system reform initiatives in most provincial jurisdictions, along with increasing generic prescription utilization rates.  Generic molecules comprised 60.7% of prescriptions dispensed in the first quarter of 2013 compared to 57.6% in the same period of the prior year.  In the first quarter of 2013, pharmacy sales accounted for 48.6% of the Company's sales mix compared to 48.8% in the same quarter of the prior year.

Front store sales were $1.278 billion in the first quarter, an increase of 4.3% compared to the same period last year, led by strong growth in food and confection, cosmetics and over-the-counter medications.  The Company's store network development program, which resulted in a 3.2% increase in drug store selling space compared to a year ago, continues to have a positive impact on sales growth, particularly in the front of the store.  On a same-store basis, front store sales increased 3.3% during the first quarter of 2013.

First quarter net earnings, at $119 million, were marginally higher than net earnings generated during the same period last year. On a diluted basis, net earnings per share were 59 cents in the first quarter of 2013 compared to 56 cents per share in the same period last year, an increase of 5.4%.  Year-over-year, gross profit dollars increased 4.2% during the first quarter of 2013, as strong sales growth, particularly in the front of the store, combined with a continued focus on promotional effectiveness and margin enhancement initiatives, served to offset further downward pressure on pharmacy sales and margins.  First quarter operating income, at $175 million, was essentially flat to the same period of last year, as the benefits of cost reduction, productivity and efficiency initiatives in comparable stores were offset by higher operating expenses related to the Company's network growth and expansion initiatives.  In addition to the earnings factors noted above, the cumulative impact of the Company's share repurchase program had a positive impact on growth in net earnings per share during the first quarter of 2013, as there were 3.8% fewer diluted shares outstanding (on a weighted average basis) compared to the first quarter of 2012.

Commenting on the results, Domenic Pilla, President and CEO stated, "We are pleased with our first quarter results.  While the regulatory headwinds facing our industry have yet to subside, we continue to outperform the market.  The collective commitment of our Associate-owners and their teams at store level to provide the best in patient care and customer service is delivering above-market pharmacy volume growth and robust sales and market share gains in the front of the store."

Store Network Development

During the first quarter, the Company opened seven new drug stores, one of which was a relocation, and completed six major drug store expansions.  The Company also acquired four drug stores and one long-term care pharmacy during the quarter.  In addition to this activity, one Shoppers Home Health Care store was relocated and five smaller drug stores were consolidated or closed.  At quarter end, there were 1,368 stores in the system, comprised of 1,300 drug stores (1,241 Shoppers Drug Mart/Pharmaprix stores and 59 Shoppers Simply Pharmacy/Pharmaprix Simplement Santé stores), 62 Shoppers Home Health Care stores and six Murale stores.  Retail selling space was approximately 13.8 million square feet at the end of the first quarter of 2013, an increase of 3.0% compared to a year ago.

Dividend

The Company also announced today that its Board of Directors has declared a dividend of 28.5 cents per common share, payable July 15, 2013 to shareholders of record as of the close of business on June 28, 2013.

Normal Course Issuer Bid Program

During the first quarter of 2013, the Company repurchased 2,009,400 common shares under its normal course issuer bid program at an aggregate cost of $85.6 million, representing an average repurchase price of $42.60 per common share.  All repurchased common shares were subsequently cancelled.

Other Information

The Company will hold an analyst call at 3:00 p.m. (Eastern Daylight Time) today to discuss its first quarter results.  The call may be accessed by dialing 416-695-7806 from within the Toronto area, or 1-888-789-9572 outside of Toronto.  The seven-digit participant pass code number is 8845571.  The call will also be simulcast on the Company's website for all interested parties.  The webcast can be accessed via the Investor Relations section of the Shoppers Drug Mart website at www.shoppersdrugmart.ca.  The conference call will be archived in the Investor Relations section of the Shoppers Drug Mart website until the Company's next analyst call.  A playback of the call will also be available by telephone until 11:59 p.m. (Eastern Daylight Time) on May 9, 2013.  The call playback can be accessed after 5:00 p.m. (Eastern Daylight Time) on Thursday, April 25, 2013 by dialing 905-694-9451 from within the Toronto area, or 1-800-408-3053 outside of Toronto.  The seven-digit pass code number is 1102811.

About Shoppers Drug Mart Corporation

Shoppers Drug Mart Corporation is one of the most recognized and trusted names in Canadian retailing.  The Company is the licensor of full-service retail drug stores operating under the name Shoppers Drug Mart (Pharmaprix in Québec).  With more than 1,240 Shoppers Drug Mart and Pharmaprix stores operating in prime locations in each province and two territories, the Company is one of the most convenient retailers in Canada.  The Company also licenses or owns 59 medical clinic pharmacies operating under the name Shoppers Simply Pharmacy (Pharmaprix Simplement Santé in Québec) and six luxury beauty destinations operating as Murale.  As well, the Company owns and operates 62 Shoppers Home Health Care stores, making it the largest Canadian retailer of home health care products and services.  In addition to its retail store network, the Company owns Shoppers Drug Mart Specialty Health Network Inc., a provider of specialty drug distribution, pharmacy and comprehensive patient support services; and MediSystem Technologies Inc., a provider of pharmaceutical products and services to long-term care facilities.

For more information, visit www.shoppersdrugmart.ca.

Forward-looking Information and Statements

This news release, including the Management's Discussion and Analysis, ("collectively, the "News Release"), contains forward-looking information and statements which constitute "forward-looking information" under Canadian securities law and which may be material regarding, among other things, the Company's beliefs, plans, objectives, estimates, intentions and expectations.  Forward-looking information and statements are typically identified by words such as "anticipate", "believe", "expect", "estimate", "forecast", "goal", "intend", "plan", "will", "may", "should", "could" and similar expressions.  Specific forward-looking information in this News Release includes, but is not limited to, statements with respect to the Company's future operating and financial results, its capital expenditure plans, its dividend and shareholder distribution policies and the ability to execute on its future operating, investing and financing strategies.

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, prescription drug pricing and the availability of manufacturer allowances, or changes to such laws and regulations that increase compliance costs; the risk that the Company will be unable to implement successful strategies to manage the impact of the drug system reform initiatives implemented or proposed in most provincial jurisdictions; the risk of adverse changes in economic and financial conditions in Canada and globally; the risk of increased competition from other retailers or non-traditional retail channels for distribution of prescription drugs; 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 or effectively manage succession planning; 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; the risk of an inability of the Company to respond to changing consumer preferences that may result in excess inventory, inventory levels that are insufficient to meet demand or inventory obsolescence; 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; the risk of material adverse effects arising as a result of litigation; 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; product quality and product safety risks which could expose the Company to product liability claims and negative publicity; the risk that events or a series of events may cause business interruptions; and the risk of disruptions to the Company's distribution operations or supply chain which could affect the cost, timely delivery and availability of merchandise.

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 factors and not place undue reliance on the forward-looking information and statements.  Further information regarding these and other 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 52 week period ended December 29, 2012.  The forward-looking information and statements contained in this News Release represent the Company's views only as of the date hereof.  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.

Financial Information

To immediately view and download Shoppers Drug Mart Corporation's first quarter of 2013 management's discussion and analysis and unaudited condensed consolidated financial statements, please access the following links:

Q1/2013 Management's Discussion and Analysis

Q1/2013 Unaudited Condensed Consolidated Financial Statements

This information will also be available at www.sedar.com or by accessing the Investor Relations section of the Company's website at www.shoppersdrugmart.ca.

The Company reports its financial results in accordance with International Financial Reporting Standards ("IFRS").  However, the Q1/2013 Management's Discussion and Analysis accessible through the foregoing link contains references to non-IFRS financial measures, such as operating margin, EBITDA (earnings before finance expenses, income taxes and depreciation and amortization), EBITDA margin and cash interest expense.  These non-IFRS financial measures do not have standardized meanings prescribed by IFRS and, therefore, may not be comparable to other reporting issuers.

These non-IFRS financial measures have been included in the Q1/2013 Management's Discussion and Analysis as they are measures which management uses to assist in evaluating the Company's operating performance against its expectations and against other companies in the retail drug store industry.  Management believes that non-IFRS financial measures assist in identifying underlying operating trends.

These non-IFRS financial measures, particularly EBITDA and EBITDA margin, are also common measures used by investors, financial analysts and rating agencies.  These groups may use EBITDA, EBITDA margin and other non-IFRS financial measures to value the Company and assess the Company's ability to service its debt.

SOURCE Shoppers Drug Mart Corporation

PDF available at: http://stream1.newswire.ca/media/2013/04/25/20130425_C8594_DOC_EN_25990.pdf

PDF available at: http://stream1.newswire.ca/media/2013/04/25/20130425_C8594_DOC_EN_25991.pdf

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