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Shoppers Drug Mart sees strong front-end sales in Q2

TORONTO — It is easy to see why Loblaw wanted to acquire Canada’s Shoppers Drug Mart following the release of second quarter results that highlight attractive growth prospects.

Canada’s Shoppers Drug Mart saw a boost in second-quarter sales and earnings, and according to president and CEO Domenic Pilla, the company is “well-positioned heading into the back half of the year.”

While Shoppers Drug Mart executives limited the discussion during Thursday’s conference call with analysts to its second quarter financial results, Pilla did tell analysts that associates were, in general, excited to learn of the deal with Loblaw.

“The reaction, overall, within the organization was excited. They see the complementary nature and, generally speaking, both our central office employees and the associates are very excited about the possibilities,” Pilla told analysts.

Pilla also acknowledged that some associates had some apprehension. “Their concern was around the support of the associate model and franchise model and we reassured them that that is something that we are absolutely planning to continue.”

Sales for the quarter ended June 15 rose 3.3% to C$2.54 billion, driven by strong front-end sales and continued strength in prescription count. Same-store sales rose 2%.

Pharmacy sales during the quarter totaled C$1.21 billion, up 3.1% compared with the year-ago period. Same-store pharmacy sales increased 1.3%. During the quarter, the number of prescriptions dispensed at retail increased 7% compared with the year-ago period and was up 5.1% on a same-store basis.

In addition to a rise in the number of prescriptions filled for patients, the company’s MediSystem Pharmacy business, which provides pharmacy services for residents and patients in long-term care, retirement communities, and organizations that deliver specialized care, also helped fuel pharmacy sales.

At the front end, sales were C$1.33 billion, up 3.6% compared with the year-ago period as the retailer experienced sales gains in all categories, led by cosmetics, OTC medications, and food and confections. Same-store front-end sales rose 2.6%.

Net earnings, which included a charge resulting from the closure of two Murale stores, totaled C$147 million, or 73 Canadian cents per diluted share, during the quarter compared with C$145 million, or 69 Canadian cents per diluted share, in the year-ago period.

“We are pleased with our second quarter operating and financial results. Together with our associate-owners and their teams at store level, we continue to execute on our strategic priorities and growth initiatives, which are driving sales and market share gains in our core health, health and convenient categories,” said Pilla. “At the same time, we remain diligent in our efforts to reduce costs and drive efficiencies across the business. Our efforts thus far have us well-positioned heading into the back half of the year in what remains a challenging economic, competitive and regulatory environment.”

When asked about its store in Bayview Village in Toronto, Ontario, which features an enhanced BeautyBOUTIQUE, Pilla told analysts that he is “very pleased” with the performance and it is “a validation of some of our concepts and ideas.” He said that the company is still evaluating the rollout plan of the format but there are plans to add a second location likely in the third quarter.

Loblaw Cos. and Shoppers Drug Mart announced earlier this week a definitive agreement under which Loblaw will acquire Shoppers Drug Mart for C$12.4 billion in cash and stock. The transaction is expected to be completed within six to seven months.